A Bitcoin Covered Call is an options trading strategy where an investor sells (writes) call options on Bitcoin while simultaneously holding an equivalent amount of the underlying Bitcoin. This strategy aims to generate income through the collection of option premiums, particularly in markets anticipated to be range-bound or experience moderate price appreciation.
Mechanism
The operational structure involves owning a specific quantity of Bitcoin and then selling call options against that holding, granting the option buyer the right to purchase the Bitcoin at a predetermined strike price before a certain expiration date. The premium received from selling the call option provides immediate cash flow. If Bitcoin’s price stays below the strike price, the options expire worthless, and the seller retains the premium and the Bitcoin.
Methodology
The strategic rationale centers on generating yield from existing Bitcoin holdings, often as a risk management tool to partially offset potential price declines or to enhance returns during periods of low volatility. This methodology involves selecting appropriate strike prices and expiration dates to balance premium income against the risk of having the Bitcoin called away, limiting upside participation beyond the strike price.
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