CC and CSP on BTC

[Pekelo]

I expect bitcoin to stay in a fairly wide range, 6K to 9K or so. The point is that it is not going to run up crazy nor will it fall to 3 digits. Assuming I am right and one doesn't really want to time the market, playing covered calls and cash secured puts looks like a no brainer when the premium is this high.

The quoted option premiums are from Deribit. The June ATM calls are 21% of the current price (8K) or around $1690. Puts are a bit lower.

The March expiry ATM calls can be sold for $643. So let's assume one owns 1 BTC and sells the 8K strike. That is about 7% return on the investment in 11 days, if the price stays around 8K or goes up.

If the price drops, at least we are protected up to 7% and will write another call. If it goes way up we will let it go and write cash secured puts. Once we are in cash we wither make money by just letting the price go up and our puts expiring worthless or if price drops, we get to own cheap coins.

So let the forward test begin.

Bought 1 BTC for 8K and sold March 30th calls for $643...

 

[JackRab]

If the price drops, at least we are protected up to 7% and will write another call. .

You would probably want to buy back the initial short call though... otherwise you will be left hanging in a decent move up.

 

[Pekelo]

You would probably want to buy back the initial short call though...

Well, we would let it expiry before we write another one.Depends on how big the move is...

 

[johnmarg1]

Well, we would let it expiry before we write another one.Depends on how big the move is...

I think you would lose if it dropped below the call break even point. If you sold another call it would be below your stock buy point and a loss would occur no matter how much it rose again. If it kept dropping you would be further in the hole if you kept selling calls.

 

[Pekelo]

If you sold another call it would be below your stock buy point and a loss would occur no matter

For sure. I never said this was a riskless or lossless strategy.

 

[Pekelo]

Bought 1 BTC for 8K and sold March 30th calls for $643...

BTC went up to 9K, currently around $8500, and the calls can be bought back for $643. So basically the "stock" gained 500 bucks (6% in a week) while the premium stayed the same.

I am going sell the BTC and buy the calls back and sell the cash secured 8500 puts next week expiry for $345.

I could have rolled into the 8500 calls, they are at $290, but let's try the CSP approach.

1st week gain is 6%...

 

[Pekelo]

I am going sell the BTC and buy the calls back and sell the cash secured 8500 puts next week expiry for $345.

BTC tanked below 7K, so I got assigned the coins for 8500, pretty high for the current price, but this experiment is about blindly doing this.

Current price is around 7118, so selling the 7K CC for $348. (Apr 6th expiry)

Had I been an avergae BTC investor, I would be down $900 from the starting price of 8K. Instead of that, thanks to options, I made (643+345+348) although my current holding price is from 8500, I am only down less than a hundred bucks.

The one month expiry 7K calls are almost $700, but this way it is more fun...

 

[donnap]

I am only down less than a hundred bucks.

Yes, but you've locked in a loss for now.

8500 - (643+345+348) = 7164

Your short call "sells" the BTC for 7000, if assigned.

That's not say that you can't work your way back to a profit.

GL with the experiment.

 

[Pekelo]

Yes, but you've locked in a loss for now.

8500 - (643+345+348) = 7164

I know, should have said, more than a hundred bucks.

 

[EliteThink]

nice, i'd be in but not sure about that firm.