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Selling Weekly Put Options on Ethereum to Generate income while hedging Call side
The other day I was talking with a trader friend from Brazil (Hi Jon!) on LinkedIn, and we exchanged a few trading ideas. Jon mentioned about broken butterflies while I talked about crypto options.
Long story short, I have been trading crypto options for years, with mixed success.
There has been great income followed by a totally wiped-out crypto account
Back in 2020, I took the biggest hit ever, which totally wiped my account on the Deribit platform.
For truth's sake, I didn't know much I was doing back there. I had more than 50 open positions, while I had just about 12 ETH on the platform. I paid for my lesson and lost them all.
Back in the Fall of 2022, I resumed trading crypto options on the Deribit platform, this time trading Solana coin and Ethereum.
I had some great plans regarding Solana, but unfortunately, FTX collapse followed, and Solana soon was delisted from Deribit. So I went back to trading options with ETH.
This time I was already paying more attention to the technicals, looking for support and resistance levels. 50-day / 200-day moving averages, golden / crosses, etc.
I come up with a plan to sell monthly fully covered call options on Ethereum while hedging positions with futures. Not a bad idea, but again I took my losses here. Not because I didn't know what I was doing, but just because of bad time management.
So I come back to the basics, selling just call options and if challenged, hedging with put options.
At the moment I'm holding 1 Call position on ETH with an expiry on June 30, 2023, and a strike price of $2,000.
Originally this position was opened at the start of March with a strike price of $1,450 but has been rolled up and away ever since, unfortunately with a small loss (in terms of ETH).
Additionally for this position, I'm selling weekly expiry put options on the same underlying (read ETH).
For placing put trades I'm extra conservative and look on deltas under -0.1. Which roughly would mean there is more than a 90% profit probability.
Here is an example
1700 Put (April 28, expiry) for 0.004 ETH
2000 Call (June 30, expiry) for 0.131 ETH
I'm not touching the call position at the moment, with ETH trading at $1,850 I'm quite happy with this position, but I'm ready to roll up and roll away from this position if it will become challenged.
The put option here is used as a hedge for the call option. And while the premium received is much smaller, it adds up and can make up to 1% monthly.
Of course, even with such high probability trades, there is always a chance that things could go South (and in fact, they will go once in a while), but remember this position is used as a hedge to the call position.
If the put strike price will get touched or challenged, the call options price will go down, and we will have the option to adjust, break even or roll forward.
To sum it up - weekly put options trades on Ethereum with Delta under - 0.1 are worth considering for crypto income-seeking investors. Not a trade recommendation though!