{"id":262445,"date":"2021-05-29T21:29:29","date_gmt":"2021-05-29T18:29:29","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/heres-how-traders-use-call-options-to-increase-their-bitcoin-holdings\/"},"modified":"2021-05-29T21:29:29","modified_gmt":"2021-05-29T18:29:29","slug":"heres-how-traders-use-call-options-to-increase-their-bitcoin-holdings","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/heres-how-traders-use-call-options-to-increase-their-bitcoin-holdings\/","title":{"rendered":"# Here&#8217;s how traders use call options to increase their Bitcoin holdings"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2781edc2ceb\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2781edc2ceb\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-how-traders-use-call-options-to-increase-their-bitcoin-holdings\/#Selling_a_covered_call_can_become_a_semi-fixed_income_trade\" >Selling a covered call can become a semi-fixed income trade<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-how-traders-use-call-options-to-increase-their-bitcoin-holdings\/#Two_outcomes_higher_Bitcoin_quantity_or_larger_USD_position\" >Two outcomes: higher Bitcoin quantity or larger USD position<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Here&#8217;s how traders use call options to increase their Bitcoin holdings   <\/strong>&#8221;<\/p>\n<div class=\"post-content\" data-v-5a136f3a>Crypto traders are drawn to the market by its bombastic growth and lucrative opportunities to make a profit. However, not every investor is seeking volatility or using degenerate leverage levels to gamble at derivatives exchanges.\u00a0<\/p>\n<p>In fact, stablecoins usually comprise half of the total value locked (TVL) on most decentralized finance (DeFi) <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>lications that focus on yields.<\/p>\n<p>There&#8217;s a reason why DeFi boomed despite Ethereum network <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>n fees surpassing $10 in May. Institutional investors are desperately seeking fixed income returns as traditional finance seldomly offers yields above 5%. However, it is possible to earn up to 4% per month using Bitcoin (<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/coin360.com\/coin\/bitcoin-btc\">BTC<\/a>) derivatives on low-risk trades.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/45d9293d-c752-498b-9412-3cfa124e69fd.png\"><figcaption style=\"text-align: center;\"><em>Non-investment grade bonds yield. Source: U.S. Federal Reserve<\/em><\/figcaption><\/figure>\n<p>Notice how even non-investment grade bonds, far riskier than Treasury Bills, yield below 5%. Meanwhile, the official inflation rate in the United States for the past 12 months has stood at 4.2%.<\/p>\n<p>Paul Cappelli, a portfolio manager at Galaxy Fund Management, recently told Cointelegraph that Bitcoin&#8217;s &#8220;inelastic supply curve and deflationary issuance schedule&#8221; make it a &#8220;compelling hedge against inflation and poor monetary policies that could lead to cash positions becoming devalued over time.&#8221;<\/p>\n<p>Centralized services such as Crypto.com, BlockFi, and Nexo will typically yield 5% to 10% per year for stablecoin deposits. To increase the payout, one needs to seek higher risks, which does not necessarily mean a less known exchange or intermediary. <\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/72f8f6ad-8312-4edb-a680-2791d148b8cc.png\"><figcaption style=\"text-align: center;\"><em>Stablecoin yields on centralized services. Source: loanscan.io<\/em><\/figcaption><\/figure>\n<p>However, one can achieve a 2% weekly yield using Bitcoin derivatives. For those instruments, liquidity currently sits at centralized exchanges. Therefore the trader needs to factor in counterparty risk when analyzing such trades.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Selling_a_covered_call_can_become_a_semi-fixed_income_trade\"><\/span>Selling a covered call can become a semi-fixed income trade<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The buyer of a call option can acquire Bitcoin for a fixed price on a set future date. For this privilege, one pays upfront for the call option seller. While the buyer typically uses this instrument as insurance, sellers are usually aiming for semi-fixed income trades.<\/p>\n<p>Each contract has a set expiry date and strike price, so potential gains and losses can be calculated beforehand. This covered call strategy consists of holding Bitcoin and selling call options, preferably 15% to 20% above the current market price.<\/p>\n<p>It would be unfair to call it a fixed income trade as this strategy aims to increase the trader&#8217;s Bitcoin balance, but it doesn&#8217;t protect from negative price swings for those measuring returns in USD terms.<\/p>\n<p>For a holder, this strategy does not add risk as the Bitcoin position will remain unchanged even if the price drops.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/55a88425-e4d6-447c-b3b9-0e3738caf2f4.png\"><figcaption style=\"text-align: center;\"><em>Bitcoin June 4 call options markets. Source: Deribit<\/em><\/figcaption><\/figure>\n<p>Considering that Bitcoin was trading $37,000 when the above data was gathered, a trader could sell the $44,000 call option for June 4, maturing in six days. Depositing a 0.10 BTC margin should be enough to sell 0.30 BTC call option contracts, thereby receiving 0.00243 BTC in advance.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Two_outcomes_higher_Bitcoin_quantity_or_larger_USD_position\"><\/span>Two outcomes: higher Bitcoin quantity or larger USD position<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>There are essentially two outcomes, depending on whether Bitcoin trades above or below $44,000 at 8:00 am UTC on June 4. The $44,000 call option will become worthless for any level below this figure, so the option seller keeps the 0.00243 BTC advance payment in addition to the 0.10 BTC margin deposit.<\/p>\n<p>However, if the expiry price is higher than $44,000, then the trader&#8217;s margin will be used to cover the price difference. At $46,000, the net loss is 0.011 Bitcoin, therefore reducing the margin to 0.089 ($4.094). Meanwhile, at the time of the deposit, the 0.10 Bitcoin margin was worth $3,700.<\/p>\n<p>Indeed the covered call option seller would have made more money by holding the 0.10 Bitcoin from the beginning, as the price increased from $37,000 to $46,000. Nevertheless, by receiving the 0.00243 BTC advanced payment, one will increase the Bitcoin holdings even if the price moves below $37,000.<\/p>\n<p>That 2.4% profit in Bitcoin terms will happen for any expiry below $44,000, which is 18.9% higher than the $37,000 when Deribit option prices were analyzed.<\/p>\n<p><em>The views and opinions expressed here are solely those of the <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/noshitcoins\"><em>author<\/em><\/a><em> and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.<\/em><\/p>\n<p><template data-name=\"subscription_form\" data-type=\"markets_outlook\"><\/template><\/div>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/here-s-how-traders-use-call-options-to-increase-their-bitcoin-holdings\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Here&#8217;s how traders use call options to increase their Bitcoin holdings &#8221; Crypto traders are drawn to the market by its bombastic growth and lucrative opportunities to make a profit. However, not every investor is seeking volatility or using degenerate leverage levels to gamble at derivatives exchanges.\u00a0 In fact, stablecoins usually comprise half of&#8230;<\/p>\n","protected":false},"author":1,"featured_media":262446,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDUvZDRiZDZmMGUtYTBmYi00YjE4LWE2NDYtZGQ5NzViZjE2OWI2LmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,81209,74982,74863,74860,75012,79248,10574,73785],"class_list":["post-262445","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-bitcoin-options","tag-btc-markets","tag-cryptocurrencies","tag-cryptocurrency-exchange","tag-derivatives","tag-trading101","tag-education","tag-markets"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/262445","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=262445"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/262445\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/262446"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=262445"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=262445"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=262445"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}