Crypto Options Trading Strategy: HODL and Generate Yield

If you’ve always been curious about how to trade crypto options, you’ve come to the right place. This is a series on crypto options trading where we share some basics as well as several ready-made strategies that you can implement today. 

Whether you’re a new crypto trader, an existing perps trader, or even an advanced options trader – we hope you find this series useful. 

Part 1: What are Options: A beginner’s guide to crypto options 

Part 2: How to Hedge Your PnL Gains: Using crypto options to hedge your perpetual contract positions

Part 3: How to HODL and Generate Yield: Using crypto options to generate yield while hodling your favourite token

Part 4: How to Leverage Market Volatility: Using crypto options to profit during market volatility

Part 3: How to HODL and Generate Yield 

TL;DR. Crypto options can be used 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) while generating some yield at the same time.

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 one week BTC call option at a strike price of $55,000. 

The price of the option is at 500 USDC. As the seller, you receive the premium upfront (i.e. your account will immediately get credited 500 USDC after executing the trade).  Your BTC will be held as margin.

Where is the yield? Your one BTC has earned you 500 USDC over one week, which is 57.7% annualised on the current BTC price.

Should the BTC price drop or only appreciate modestly as you predicted (ie. is below $55,000) by the expiry 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 expiry date, you still get your $500 premium, but your BTC gains are capped at $55,000. This means you must pay the difference between the strike price and the spot price (e.g. $60,000) to the call option buyer. 

Ready to start trading crypto options? 

Trade BitMEX Options

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.

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