Sold Vertical Call Spread on Ethereum - potential income of 0.074% in 1 Day

On October 20, 2022, I sold 1 vertical call spread on Ethereum cryptocurrency with an expiry tomorrow Friday, October 21, 2022. For this trade, I got a premium of 0.000749 / ETH / $0.97 at the time of writing

Selling crypto options is pretty much the same as selling stock options, except they are settled in crypto, require less capital, are settled European style (cannot be assigned before the expiry), and can go totally wrong.

Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. Ethereum was conceived in 2013 by programmer Vitalik Buterin.

The reason I'm selling spreads instead of covered calls - I don't have 1 ETH yet, I'm trading with a margin account. I currently have invested EUR 597.57 in 0.4558625 ETH. From a full 1 ETH, I'm short of about 0.545

This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset

Here is the trade setup:

• ETH-21OCT22-1350-C trade open sell 0.0015

• ETH-21OCT22-1400-C trade open buy 0.0005

For this trade, I got a premium of 0.000759 ETH (after commissions) or about 0.074% potential income return in just 1 day, if options expire worthlessly.

I actually don’t have 1 ETH, that’s why I opted for selling a vertical spread to limit my risk, I have deposited about 0.455 ETH and sold a vertical spread on it - if ETH will rise quickly my max loss will be limited to the long position.

What happens next?

On the expiry date, October 21, 2022, ETH is trading under $1,350 per coin -  options expire worthlessly and I keep the premium and start over - if ETH trades above $1,350 on the expiry date, I pay the difference in crypto. Say ETH trades $1,400 on expiry, I need to pay the difference between the spot price and strike price, which is $50, or converted it back to ETH which would equal 0.0357 ETH.

I would be left with 0.455+0.000759-0.03357 = 0.42218 ETH

As my initial investment was worth $584.51 (according to the EUR/USD exchange rates) my new ETH worth would be $591.01. I would actually make $6.5 or about 1.11% potential income return despite I would lose a few coins.

In case of a challenging leg, I will try to roll it up and forward, as my goal right now is to grow my Ethereum holding to at least 1 ETH coin.

Interested to learn more? I'm offering paid - online live course Selling Covered Call Options on Crypto (BTC/ETH/SOL)