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Sold Vertical Call Spread on Ethereum - potential income of 0.19% in 6 Day
On September 24, 2022, I sold 1 vertical call spread on Ethereum cryptocurrency with an expiry next Friday, September 30, 2022. For this trade, I got a premium of 0.0019 / ETH / $2.52 at the time of writing
Selling crypto options is pretty much the same as selling stock options, except they are settled in crypto, require less capital, are settled European style (cannot be assigned before the expiry), and can go totally wrong.
Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. Ethereum was conceived in 2013 by programmer Vitalik Buterin.
The reason I'm selling spreads instead of covered calls - I don't have 1 ETH yet, I'm trading with a margin account. I currently have invested EUR 272.67in 0.20051887 ETH.
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-30SEP22-1500-C trade open sell 0.006
ETH-30SEP22-1550-C trade open buy 0.0035
For this trade, I got a premium of 0.0019 ETH (after commissions) or about 0.19% potential income return in 6 days, if options expire worthlessly.
Unlike stock options, where the multiplier usually is 100, we can trade 1 ETH, 0.1 BTC
As I actually don’t have 1 ETH, that’s why I opted for a vertical spread, I have deposited about 0.20 ETH and sold a vertical spread with an idea behind it - if ETH will rise quickly my max loss will be limited to the long position.
What happens next?
On the expiry date, September 30, 2022, ETH is trading under $1,500 per coin - options expire worthlessly and I keep the premium and start over - if ETH trades above $1,500 on the expiry date, I pay the difference in crypto. Say ETH trades $1,550 on expiry, I need to pay the difference between the spot price and strike price, which is $50, or converted it back to ETH which would equal 0.0322 ETH.
I would be left with 0.20051887+0.0019-0.0322= 0.17022 ETH
As my initial investment was worth $264.42 (according to the EUR/USD exchange rates) my ETH worth would be $263.84. Small, but a loss.
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, so I can start selling covered calls (more premium) and not worrying about losing on call options.
Interested to learn more? I'm offering paid - online live course Selling Covered Call Options on Crypto (BTC/ETH/SOL)