Explain How Selling OTM Options Is Used as an Income Strategy.
Selling OTM options, also known as "writing" them, is an income strategy where the seller collects the premium upfront. The seller profits if the option expires worthless, which is the most likely outcome for OTM contracts.
This strategy involves accepting limited profit (the premium) in exchange for high probability of success, but it carries the risk of unlimited loss if the underlying crypto moves sharply against the position.
Glossar
Selling OTM Options
Strategy ⎊ Selling out-of-the-money (OTM) options in cryptocurrency derivatives involves assuming a short position, collecting a premium upfront with the expectation that the underlying asset's price will remain below the strike price at expiration.
Income
Yield ⎊ Income, within the context of cryptocurrency derivatives, options trading, and financial derivatives, fundamentally represents the return generated from an investment or trading strategy.
Income Strategy
Objective ⎊ An Income Strategy in financial derivatives aims to generate consistent, positive cash flow by exploiting market inefficiencies or monetizing specific risk exposures, rather than relying solely on directional price movements.