What Is the Maximum Profit Potential for a DAO Implementing a Covered Call Strategy?
The maximum profit for a DAO using a covered call strategy is limited to the premium received from selling the call option plus the profit from the underlying asset's price appreciation up to the strike price. If the token price rises above the strike price, the DAO's profit is capped because the call option will be exercised, forcing the sale of the asset at the strike price.
The profit is calculated as: (Strike Price – Original Purchase Price) + Premium Received.
Glossar
Maximum Profit Potential
Yield ⎊ Within cryptocurrency derivatives and options trading, yield represents the anticipated return relative to the initial investment, critically informing assessments of maximum profit potential.
Covered Call
Strategy ⎊ This involves selling a call option on an asset that the investor already owns, thereby generating immediate income against potential appreciation.
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.
Maximum Profit
Definition ⎊ Maximum profit represents the theoretical upper limit on the financial gain achievable from a specific trading position or options strategy.
Time to Expiration
Decay ⎊ Time to Expiration, within cryptocurrency options and financial derivatives, represents the remaining lifespan of a contract before its termination and potential exercise or assignment.
Strike Price
Reference ⎊ The Strike Price is the predetermined reference level set at the contract's inception against which the underlying crypto asset's spot price is compared at expiration or exercise.