Options Classroom (Part Two) Let me translate this trading method of options
Assume @CryptoRounder bought 1 bitcoin:native spot at $59,000.
Now that BTC has rebounded to $63,000, his paper profit is:
63,000 - 59,000 = $4,000
If he does nothing at this point, he is purely a spot long, for every $1,000 rise in BTC, he probably earns an additional $1,000, and for every $1,000 drop in BTC, he probably loses $1,000.
Then he starts selling calls.
For example, he sells a BTC call option with a strike price of $64,000 and an expiration in 2 days; the Delta at this point in the screenshot is approximately 0.26, and the annualized return is about 81%.
This 81% annualized translates to an actual premium of approximately:
64,000 × 81% × 2 / 365 ≈ $284
So he sells this call and collects approximately $280 in premium initially.
At this point, his position changes to:
1 BTC spot = +1 Delta
Selling 1 64K call = -0.26 Delta
Net Delta = +0.74
In plain terms, if BTC rises another $1,000, he theoretically earns around $740, not the original $1,000 from pure spot. The upside profit is reduced, but he has received $280 in option fees.
Of course, the Delta friends do not need to worry; in any case, he has received some premium in advance. The lower price is the most cost-effective, while the upper price will earn a bit less. Moving on
At expiration, there will be several outcomes.
If BTC expires at $62,000, this $64,000 call expires worthless, no need to settle, and he keeps the full $280 premium.
His total profit (paper profit + actual profit) is:
Spot profit: 62,000 - 59,000 = $3,000 (paper profit)
Option profit: +$280 (actual profit)
Total profit: $3,280
If BTC expires at $64,000 (which is actually unlikely, it's just an example), the call essentially incurs no extra loss, and he still takes away $280.
His total profit is:
Spot profit: 64,000 - 59,000 = $5,000 (paper profit)
Option profit: +$280 (actual profit)
Total profit: $5,280
If BTC expires and rises to $66,000, then the 64K call sold is breached.
If settled in cash:
Spot profit: 66,000 - 59,000 = $7,000 (actual profit)
Loss from selling call: 66,000 - 64,000 = -$2,000 (actual loss)
Premium income: +$280 (actual profit)
Total profit: 7,000 - 2,000 + 280 = $5,280
So it can be understood that if it exceeds the selling price ($64,000), regardless of what the final BTC price is, his profit is locked close to a fixed range (around $5,280).
This means "breaching leads to settlement".
Then there is another type of cumulative negative Delta which looks quite complex, but is not difficult.
Assuming he still has 1 BTC spot, purchased at $59,000. Now BTC rebounds to $63,000, and he begins selling calls.
The first one sold is a call with a strike price of $64,000, assuming a premium of $280 is received. This call means that if BTC rises above $64,000 at expiration, he is willing to sell this BTC for $64,280. Because he has 1 BTC spot, this call is covered by the spot.
Then he sells a second call with a strike price of $65,000, assuming he receives another $105 in premium. At this point, he has received a total of $385 in premium from the two calls.
The problem lies with the second call.
Because he has only 1 BTC spot, the first $64,000 call has basically locked in the upside profit above $64,000 for this BTC. Selling the second $65,000 call is equivalent to additionally selling a call without spot coverage.
If BTC expires at $64,000, the spot price rises from $59,000 to $64,000, with a profit of $5,000 in the spot. Both calls have no loss, and adding the received $385 premium, the total profit is $5,385.
If BTC expires at $65,000, the spot rises from $59,000 to $65,000, making a profit of $6,000 in the spot. However, the $64,000 call has been breached, leading to a loss of $1,000. The $65,000 call is exactly at the strike price and has not incurred an additional loss.
In the end, the profit is 6,000 - 1,000 + 385 = $5,385.
This means that the total profit did not increase when BTC rose from $64,000 to $65,000, because the $1,000 increase was offset by the first call.
If BTC expires at $66,000, the spot rises from $59,000 to $66,000, yielding a profit of $7,000 in the spot. However, the $64,000 call will incur a loss of $2,000, and the $65,000 call will also begin to incur a loss of $1,000.
In the end, the total profit is 7,000 - 2,000 - 1,000 + 385 = $4,385.
BTC rising from $65,000 to $66,000 results in only $1,000 more in the spot, but the two calls together incur a loss of $2,000, leading to a total profit decrease of $1,000.
This is the meaning of cumulative negative Delta.
Of course, if there are spots of Bitcoin at these three positions, it would be a different matter.
Assume he bought 3 BTC at $59,000, with a total cost of:
59,000 × 3 = $177,000
Now BTC rises to $63,000, and he begins to sell calls in batches.
Selling three calls:
The first is a call with a strike price of $64,000, assuming he receives a premium of $280.
The second is a call with a strike price of $65,000, assuming he receives a premium of $105.
The third is a call with a strike price of $66,000, assuming he receives a premium of $40.
The three calls yield a total of: 280 + 105 + 40 = $425
The structure means dividing the three BTC into three tiers for sale:
The first BTC is willing to sell at 64,000 + 280 = $64,280.
The second BTC is willing to sell at 65,000 + 105 = $65,105.
The third BTC is willing to sell at 66,000 + 40 = $66,040.
If at expiration BTC is below $64,000, for example at $63,500, all three calls expire worthless. He still holds 3 BTC while receiving $425 in premium, making the profit:
4,500 × 3 = $13,500
Adding the premium of $425, the total profit is:
13,500 + 425 = $13,925
If BTC expires at $65,000, the three BTC would earn a total of:
65,000 - 59,000 = $6,000
6,000 × 3 = $18,000
However, the sold $64,000 call has been breached, incurring a loss of:
65,000 - 64,000 = $1,000
The other two $65,000 call and $66,000 call have not incurred losses yet.
So the total profit is:
18,000 - 1,000 + 425 = $17,425
This is equivalent to the first BTC being sold near $64,280, while the other two BTC continue to benefit from the rise.
If BTC expires at $66,000, the three BTC would earn a total of:
66,000 - 59,000 = $7,000
7,000 × 3 = $21,000
However, the $64,000 call incurs a loss of:
66,000 - 64,000 = $2,000
The $65,000 call incurs a loss of:
66,000 - 65,000 = $1,000
The $66,000 call hits exactly the strike price, incurring no additional loss yet.
So the total profit is:
21,000 - 2,000 - 1,000 + 425 = $18,425
This is equivalent to the first two BTC being sold near $64,280 and $65,105 respectively, while the third BTC is still waiting for delivery near $66,040.
If BTC rises to $70,000, the three BTC would earn a total of:
70,000 - 59,000 = $11,000
11,000 × 3 = $33,000
However, all three calls are breached:
$64,000 call incurs a loss of $6,000
$65,000 call incurs a loss of $5,000
$66,000 call incurs a loss of $4,000
All three calls collectively incur a loss of:
6,000 + 5,000 + 4,000 = $15,000
Finally, the total profit is:
33,000 - 15,000 + 425 = $18,425
Thus, once BTC rises above $66,000, the profit is basically capped.
This is the core of this strategy.
Buying 3 BTC at $59,000, then selling calls at $64,000, $65,000, and $66,000 after rebounding to $63,000. This means setting three selling positions in advance, just without directly placing a spot sell order, but instead collecting a premium first by selling calls.
If BTC does not rise, he continues to hold BTC and earns additional premiums.
If BTC rises, he will sell BTC step by step at $64,000, $65,000, and $66,000.
If BTC surges to $70,000, he will not benefit from the rise above $66,000, as the upside profits from the three BTC will be offset by the three calls.
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