How Does the ‘Covered Call’ Strategy Generate Income on a Long Crypto Position?
The Covered Call strategy generates income by selling (writing) a Call Option against a long position in the underlying cryptocurrency. The income is the premium received from the option buyer.
This premium is kept by the seller regardless of whether the option is exercised or expires worthless. This strategy is used to earn a yield on a crypto holding, particularly in sideways or moderately bullish markets, in exchange for capping the potential upside profit.
Glossar
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.
Covered Call Strategy
Mechanism ⎊ A covered call strategy, within cryptocurrency derivatives, involves holding an underlying asset while simultaneously selling a call option on that same asset, generating premium income.
Underlying Cryptocurrency
Asset ⎊ The underlying cryptocurrency is the specific digital asset, such as Bitcoin or Ethereum, upon which the terms of the option contract are predicated.
Covered Call
Strategy ⎊ This involves selling a call option on an asset that the investor already owns, thereby generating immediate income against potential appreciation.