📶Options Strategies

Long Call

Being long a call allows the holder to buy an asset at a strike price in the future. An investor may use this tool to gain exposure to an asset around the time of catalyst they believe to be bullish, such as purchasing an ETH call option ahead of a big network upgrade such as the merge.

Example Scenario

• Market price of ABC token is $50

• Sarah buys ABC call option for $4 on January 1st which expires on March 30 with a strike of $55

• On March 31, ABC's price closes at $60 which means the option exercises as its above $55

• On April 1:

  • $5 profit on option exercise

  • $4 cost of option

  • $1 total profit

Long Put

A trader would long a put option in anticipation of a decline in the underlying asset's price. Being long a put allows this trader to sell an underlying asset at a strike price at a specific time in the future.

Example Scenario

• Market price of ABC token is $50

• Sarah buys ABC put option for $4 on January 1st which expires on March 30 with a strike of $45

• On March 31, ABC's price closes at $40 which means the option exercises as its below $45

• On April 1:

  • $5 profit on option exercise

  • $4 cost of option

  • $1 total profit

Covered Call

A covered call is a strategy which involves selling a call option whilst simultaneously owning the underlying asset. This is a type of hedging strategy as the seller sells some of the asset's upside for a period of time in exchange for the option premium.

Example Scenario 1

• Sarah buys ABC token at $50 on January 1st

• Sarah sells an ABC Call option for $4 - expires on March 30 with a strike of $55

• On March 31, ABC's price closes at $60 which means the option exercises as its above $55

• On April 1:

  • $10 profit on ABC token purchase

  • $4 premium collected from selling the option

  • $5 loss on the option's exercise

  • $9 total profit

Example Scenario 2

• Tom buys ABC token at $50 on January 1st

• Tom sells an ABC Call option for $4 - expires on March 30 with a strike of $55

• On March 31, ABC's price closes at $40 which means the option expires worthless as the token price is below the strike price.

• On April 1:

  • $10 loss on ABC token purchase

  • $4 premium collected from selling the option

  • $6 total loss

Cash Secured Put

A cash secured put occurs when a trader sells a put option, but also puts enough money aside to buy the asset in the case the option is exercised. This is different to selling a naked put where the holder hopes the price doesn't decline.