What is selling Call options for rental income? What is laddered selling of Call options? What is accumulating Put options? Options, dual currency small details
After reading the excellent writings on selling Call options for rental income by @BTC__options and @CryptoRounder, I am now using a similar strategy, of course, I am using dual currency, but considering that many friends may not understand, I will explain in simple terms what selling Call options for rental income is.
Assuming bitcoin:native is now 60,000 US dollars
If I judge that we are currently in a bear market, even if there is a short-term rebound, it is hard to break through too much, so I sell an out-of-the-money Call option that expires this Friday, for example:
Sell a Call option with a strike price of 68,000 US dollars, and assume I can receive a premium of 300 US dollars, the logic at this point is:
As long as by this Friday's expiration, if BTC does not rise above 68,000 US dollars, this Call option will expire worthless, and the 300 US dollars I received as a premium would be my profit.
If the following situations occur:
1. If BTC is less than 68,000 US dollars at 16:00 Beijing time on Friday, the Call option expires worthless, earning 300 US dollars.
2.A If BTC is greater than 68,000 US dollars at 16:00 Beijing time on Friday, the Call option gets exercised, and if BTC at that time is 68,200 US dollars, the intrinsic value is 200 US dollars, having received a premium of 300 US dollars, thus making a profit of 100 US dollars.
2.B If BTC is greater than 68,000 US dollars at 16:00 Beijing time on Friday, the Call option gets exercised, and if BTC at that time is 70,000 US dollars, the intrinsic value is 2,000 US dollars, having received a premium of 300 US dollars, thus making a profit of 1,700 US dollars.
So the essence of selling Call options for rental income is to exchange the risk of a massive price surge for premium income.
In layman's terms, it means I do not believe that Bitcoin will surge in the short term, thus the unsold BTC will provide me with premium income.
Of course, the risk is that as long as BTC suddenly surges, selling Call options can lead to rapid losses.
Therefore, many friends do not sell one price at a time, but rather use laddered selling of Call options, so what is laddered selling of Call options?
For example, if BTC is currently 60,000 US dollars, I can sell in this manner:
Sell the 66,000 Call, receive 500 US dollars.
Sell the 68,000 Call, receive 300 US dollars.
Sell the 70,000 Call, receive 180 US dollars.
Sell the 72,000 Call, receive 100 US dollars.
The benefit of doing this is that if the price only rebounds slightly, several Calls may expire worthless, allowing me to earn all the premiums. If BTC truly rises, not all positions are at the same level getting exercised.
Now, what does accumulating Put options during a rebound mean?
Still assuming BTC is at 60,000 US dollars.
If BTC rebounds to 62,000 or 63,000 US dollars, believing this is just a bear market rebound, I will buy Put options.
For example, buying a Put option with a strike price of 58,000 US dollars, assuming I spend 800 US dollars on the premium, if BTC later drops to 55,000 US dollars, this Put will have an expiration value of 3,000 US dollars, and after deducting the 800 US dollars cost, I will earn 2,200 US dollars.
If BTC does not drop but instead rises to 64,000 US dollars, this Put will expire worthless, and I will lose 800 US dollars in premium.
Therefore, buying Put options is directional short selling, and the maximum loss is the premium, while the profit comes from the decline of BTC.
Finally, let's mention that buying Put + selling Call = synthetic futures short selling.
Still assuming BTC is at 60,000 US dollars.
At the same time do two things, buy a Put option at 60,000 US dollars and sell a Call option at 60,000 US dollars.
If at expiration, BTC drops to 55,000 US dollars, the Put is worth 5,000 US dollars. The Call expires worthless.
So in reality, buying a Put option with a strike price of 60,000 US dollars represents the right to sell BTC at 60,000 US dollars at expiration; the more BTC drops, the more profit this Put generates.
Selling the 60,000 Call means selling someone the right to buy BTC at 60,000 US dollars from me; if BTC exceeds 60,000, I will have the obligation to sell at 60,000, thus the more BTC rises, the more I lose.
When these two positions are combined, the effect is akin to shorting BTC at the 60,000 US dollars level.
That concludes the explanation, but I assume many friends might still find it confusing, so dual currency is essentially a solution to this problem. Of course, in solving the problem, the exchange will take a portion of the premium. Therefore, for the same position, the returns from dual currency will be lower than options, but dual currency is indeed simpler.
Selling Call options is equivalent to selling high, meaning selling BTC at a higher price.
For example, if BTC's price is 60,000 US dollars, expecting that by Friday, BTC's price will be 65,000 US dollars, and the premium is 200 US dollars (with 100 being taken by the exchange).
Then when BTC is at or above 65,000 US dollars at 16:00 Beijing time on Friday, I will earn 200 US dollars.
If it goes above 65,000 US dollars, even if it reaches 70,000 US dollars, it will only be sold at 65,000 US dollars, while giving a premium of 200 US dollars.
Selling PUT options is the opposite, which means buying low, buying BTC at a lower price.
For example, I am currently using the method of selling PUT options to bottom out BTC; similarly, BTC's price is 60,000 US dollars, I will buy BTC at 59,000 US dollars. If the price reaches 59,000 US dollars or lower, I will buy it at this price for BTC, even if BTC's price is only 50,000 US dollars, I will only be able to buy it at 59,000 US dollars.
Therefore, personally speaking, whether it is options or dual currency, it is relatively safe in the short term.
End
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