Ethereum - Rolled Forward and Up 1 Call + hedging with Futures - potential income of 1.8% in 10 Days

Yesterday’s trade with Ethereum didn't work out as expected - or it worked as planned, except the price trigger-based trade entry signal didn't do its job - despite I had the rule to go long with Ethereum if the price touches $1,250 - it just didn’t enter the trade - I guess I mixed up some of the settings (most probably left POST price, instead of Mark, when constructed this trigger based entry )

These little technical details should always be kept in mind… In theory, selling a call option + hedging with a future sounds like a 0-risk game, but in practice - there are still some technicals to be dealt with, and if left unmonitored can go totally wrong.

To keep it simple - I decided to roll up and forward this trade, hopefully for a profit. And again adding a price-triggered entry buy signal for Ethereum futures, if the price touches $1,300

Without further ado

Selling crypto options is pretty much the same as selling stock options, except they might be settled in crypto, require less capital, are settled European style (cannot be assigned before the expiry), and can go totally wrong.

This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset

Here is the trade setup:

• ETH-30NOV22-1250-C buy 0.0171

• ETH-9DEC22-1300-C sell 0.0325

Here I bought back today $1,250 call option, paying 0.0171 ETH, and opened a sold a new call option with a higher strike and expiry further out.

For this trade setup, I earned a premium of 0.01805 ETH (after commissions) or about 1.8% potential income return in 10 days, if options expire worthlessly.

I actually don’t have 1 ETH, at the moment I have about 0.64 ETH, in case ETH price rises above $1,300 I'm exposed to unlimited risk

To hedge against such risk - I've opened a $1,300 price-triggered buy signal for the ETH futures contract. If ETH will touch the $1,300 price, I hope my trigger-based trade signal will work out this time and will buy long futures. That is how - the long futures contract will hedge against a short-call option and will help to break even.

What happens next?

On the expiry date, December 9, 2022, ETH is trading under $1,300 per coin -  options expire worthlessly and I keep the premium and start over - if ETH trades above $1,300 on the expiry date, I pay the difference in crypto. Say ETH trades $1,400 on expiry, I need to pay the difference between the spot price and strike price, which is $100, or converted it back to ETH which would equal 0.0769 ETH.

I would be left with 0.64817356-0.0769 = 0.57127356 ETH

As my initial investment was worth $778.29 (according to the EUR/USD exchange rates) my new ETH worth would be $799.78 I would actually make +$21.49 or about +2.76% gain, despite I would lose a few coins.

In case of a challenging leg, I will try to roll it up and forward, as my goal right now is to grow my Ethereum holding to at least 1 ETH coin.

Additionally, I'm planning to enter long trade with ETH futures if the price of $1,300 is touched. On the Deribit trading platform, I can enter trigger-based trade. In case I will be able to hedge this trade at $1,300 and the strike price reaches $1,400. I will actually make 0.0769 ETH from the long future.

In theory - this is a zero-risk trade, in practice - it will ask very reliable execution plan if the $1,300 leg gets challenged.

Talk soon