OPTIONS

What’s a Covered Call?

A covered call is an options strategy where you own the underlying asset (in this case, wBTC) and sell a call option against it. This generates premium income but caps your upside if the asset’s price surges past the strike price.

What Does "Out-of-the-Money" Mean?

An OTM call option has a strike price higher than the current price of wBTC. For example, if wBTC is trading at $60,000, an OTM call might have a strike price of $65,000. The goal is to collect the premium while betting the price won’t hit that strike by expiration—letting the option expire worthless so you keep the premium and your wBTC.

Steps to Sell OTM Covered Calls on wBTC

  1. Own wBTC: You need at least 1 wBTC (or a fraction, depending on the platform) in your wallet or exchange account. Since wBTC is an ERC-20 token on Ethereum, ensure it’s in a compatible wallet (e.g., MetaMask) or on an exchange that supports options trading.
  2. Find a Platform: Traditional stock brokers like Fidelity don’t typically offer wBTC options. You’ll need a crypto derivatives platform like:
    • Deribit: A popular exchange for Bitcoin-based options (including wBTC).
    • Binance: Offers crypto options, though availability depends on your region.
    • Bybit or OKX: Other alternatives with options markets.
      Check if they list wBTC options specifically—some focus on BTC but may support wBTC.
  3. Check the Market: Look at wBTC’s current price. Let’s say it’s $60,000 today (March 11, 2025—prices fluctuate, so this is hypothetical). Review the options chain for available strike prices and expiration dates.
  4. Select an OTM Strike: Choose a strike price above $60,000—say, $65,000 or $70,000. The further OTM, the lower the premium but the higher the chance the option expires worthless, letting you keep the full premium.
  5. Pick an Expiration: Options have expiration dates (e.g., weekly, monthly). Shorter expirations (like 1 week) give less time for wBTC to move, reducing risk of hitting the strike but offering smaller premiums. Longer expirations (like 1 month) yield more premium but increase exposure.
  6. Sell the Call: Place the order on your chosen platform. You’ll receive the premium upfront (e.g., 0.01 wBTC or its USD equivalent). Your wBTC is "locked" as collateral until expiration or you buy back the option.
  7. Monitor and Manage:
    • If wBTC stays below the strike (e.g., $65,000) by expiration, the option expires worthless. You keep the premium and your wBTC.
    • If wBTC surges past $65,000, the buyer might exercise the option, and you’ll sell your wBTC at $65,000 (plus the premium you already pocketed).

Example

  • wBTC price: $60,000
  • Sell 1 wBTC call, strike $65,000, expiring in 1 month, premium = 0.015 wBTC ($900 at $60,000/wBTC).
  • Outcomes:
    • wBTC hits $64,000: Option expires worthless. You keep 0.015 wBTC premium + your 1 wBTC.
    • wBTC hits $70,000: Option exercised. You sell 1 wBTC at $65,000 + keep $900 premium = $65,900 total (missing out on the extra $5,000 upside).

Risks and Rewards

  • Reward: Extra income from premiums. Works well in flat or mildly bullish markets.
  • Risk: Caps your upside. If wBTC moons to $80,000, you’re stuck selling at $65,000. Also, if wBTC crashes, your premium cushions the loss but doesn’t eliminate it.

Practical Notes

  • Liquidity: wBTC options might have lower volume than BTC options, so check bid-ask spreads.
  • Fees: Factor in platform fees and Ethereum gas costs (if applicable).
  • Regulations: Ensure your region allows crypto derivatives trading.

example

  • Current Price: $79,400
  • OTM Strikes:
    • $82,000 (slightly OTM)
    • $85,000 (moderately OTM)
    • $90,000 (far OTM)
  • Expiration Dates: March 18 (1 week), April 11 (1 month)
  • Premiums:
    • $82,000, 1 week: ~0.005 wBTC ($397)
    • $85,000, 1 month: ~0.012 wBTC ($952)
    • $90,000, 1 month: ~0.008 wBTC ($635)

These are estimates based on typical BTC options pricing (e.g., Deribit fees cap at 12.5% of option value, with 0.03% maker/taker fees). Premiums decrease the further OTM and increase with longer expirations.

Selling the OTM Covered Call

  1. Own wBTC: Ensure you hold at least 1 wBTC (or a fraction, depending on contract size—Deribit’s minimum is 0.1 BTC).
  2. Choose Strike: Pick $85,000, expiring April 11. It’s OTM by $5,600, balancing premium and likelihood of expiring worthless.
  3. Sell on Deribit:
    • Log in, navigate to the options market.
    • Select wBTC (or BTC if wBTC isn’t listed), $85,000 strike, April 11 expiration.
    • Sell 1 call contract. You’ll receive ~0.012 wBTC ($952) upfront.
  4. Collateral: Your 1 wBTC is locked until expiration or you buy back the option.

Outcomes

  • wBTC < $85,000 by April 11: Option expires worthless. You keep $952 premium + 1 wBTC.
  • wBTC > $85,000: Option exercised. You sell 1 wBTC at $85,000 + keep $952 = $85,952 total. If wBTC hits $90,000, you miss out on $4,048 upside.