Wallets&Exchanges

Crypto Options Trading Strategy: HODL and Generate Yield

The first part of this series covered how trading crypto Options can be a way to hedge your perpetual contract position. 

This time around, we share another crypto options strategy that you can use – specifically, how you can HODL your desired token(s) (e.g. Bitcoin) while generating yield. 

How to Use Crypto Options to Generate Yield 

TL;DR. One can use an Option to generate a fixed income (yield) as long as the underlying asset price does not rise above the Option short call strike price.

Why would you want to do this? You wish to HODL a token (e.g. BTC) but generate some yield simultaneously.

Let’s Look At An Example

Say you are currently holding BTC (Bitcoin) in your wallet. 

The current BTC price is $45,000. 

You expect a moderate price appreciation of BTC, of around $5,000 in the next 3 months. 

While hodling BTC to ride this wave, you wish to generate additional yield. 

How Can Options Help?

A way to generate yield on your BTC is by selling a Call Option. 

In this scenario, you decide to sell a BTC Call Option at a strike price of $55,000. 

The contract trades at a $500 premium. As the seller, you receive the premium upfront. 

Should the BTC price drop (e.g. to below $55,000) by the expiration date, you keep the $500 premium as well as any BTC price increases. 

Should the BTC price rise (e.g. to above $55,000) by the expiration date, your gains are capped at $55,500. This means you must pay the difference between the strike price and the spot price (e.g. $60,000) to the call option buyer. 

 

Like what you’ve read? We’ve got a range of educational resources on trading crypto Options as well as other derivatives, which you can find here.

To be the first to know about our new listings, product launches, giveaways and more, we invite you to join one of our online communities and connect with other traders.  For the absolute latest, you can also follow us on Twitter, or read our blog and site announcements for the absolute latest. 

The post Crypto Options Trading Strategy: HODL and Generate Yield appeared first on BitMEX Blog.

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