A Covered Call is an options strategy where an investor sells a call option against an equivalent amount of an underlying cryptocurrency they already own, such as holding 1 BTC while simultaneously selling a call option on 1 BTC. This strategy aims to generate income from the option premium received.
Mechanism
The system architecture for managing a covered call requires a portfolio management system capable of tracking both the underlying crypto asset holdings and the corresponding sold call option. Should the underlying asset’s price rise above the call’s strike price, the holder is obligated to sell their crypto at that strike price, effectively capping the profit from the asset’s appreciation but providing a buffer against minor price declines.
Methodology
The strategic rationale behind a covered call is to enhance yield on existing crypto holdings in moderately bullish or neutral market environments, effectively monetizing time decay (theta) of the sold option. This methodology is considered a conservative income-generating strategy, frequently employed by institutional investors to reduce the net cost basis of their long positions and manage portfolio risk.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
