This is how traders use call options to increase their bitcoin holdings


Crypto traders are drawn to the bombastic growth and lucrative profit opportunities. However, not every investor seeks volatility or uses degenerate levels of leverage to play on derivatives exchanges.

In fact, stablecoins typically make up half of the Total Value Locked (TVL) in most decentralized financial (DeFi) applications that focus on returns.

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There’s a reason DeFi was booming even though the Ethereum network’s media fees topped $ 10 in May. Institutional investors are desperate for fixed income returns as traditional finance rarely offers returns above 5%. However, it is possible to earn up to 4% per month using Bitcoin (BTC) derivatives on low risk trades.

Return on non-investment grade bonds. Source: Federal Reserve

Note that even sub-investment grade bonds, which are far riskier than Treasury bills, are yielding below 5%. Meanwhile, the official inflation rate in the United States was 4.2% over the past 12 months.

Paul Cappelli, a portfolio manager at Galaxy Fund Management, recently told Cointelegraph that Bitcoin’s “inelastic supply curve and deflationary issuance plan” make it a “mandatory hedge against inflation and poor monetary policy that could cause cash positions to devalue over time become”.

Centralized services like, BlockFi and Nexo typically bring 5 to 10% per year for stablecoin deposits. To increase the payout one has to look for higher risks, which doesn’t necessarily mean a lesser-known swap or broker.

Stablecoin Income from Centralized Services. Source:

However, you can get a weekly return of 2% with Bitcoin derivatives. The liquidity for these instruments is currently on central stock exchanges. Therefore, the trader must consider counterparty risk when analyzing such trades.

Selling a covered call can become a semi-fixed income deal

The buyer of a call option can purchase Bitcoin at a fixed price on a fixed future date. For this privilege you pay in advance for the seller of the call option. While the buyer typically uses this instrument as insurance, sellers typically seek semi-fixed income deals.

Each contract has a set expiration date and strike price so that potential gains and losses can be calculated in advance. This covered call strategy is to hold Bitcoin and sell call options, preferably 15 to 20% above the current market price.

It would be unfair to call it a fixed income trade as this strategy aims to increase the trader’s bitcoin balance, but it does not protect against negative price fluctuations for those measuring returns in USD.

For a holder, this strategy does not increase any risk, as the Bitcoin position remains unchanged even when prices are falling.

Bitcoin June 4th call options markets. Source: Deribit

Given that Bitcoin was trading $ 37,000 when the above data was collected, a trader could call the option for $ 44,000 on the 4th. Depositing a 0.10 BTC margin should be enough to get 0.10 To sell 30 BTC call options contracts while receiving 0.00243 BTC upfront.

Two results: higher Bitcoin amount or larger USD position

There are essentially two outcomes depending on whether Bitcoin is trading above or below $ 44,000 on June 4th at 8:00 a.m. UTC on top of the 0.10 BTC margin deposit.

However, if the expiry price is greater than $ 44,000, the merchant’s margin will be used to cover the price difference. At $ 46,000, the net loss is 0.011 bitcoin, reducing the margin to 0.089 ($ 4.094). At the time of deposit, the bitcoin margin of $ 0.10 was $ 3,700.

In fact, the covered call seller would have made more money by holding the 0.10 bitcoin from the start as the price rose from $ 37,000 to $ 46,000. Still, by receiving the prepayment of 0.00243 BTC, one will increase bitcoin holdings even if the price drops below $ 37,000.

That 2.4% gain in bitcoin terms will hit any expiration below $ 44,000, which is 18.9% higher than the $ 37,000 when Deribit option prices were analyzed.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.