Ladder Finance Introduce : Covered-Call Option Strategy
Overview :
A covered call involves a seller offering buyers a call option at a set price and expiration date on a security that the seller owns. Professional market players write covered calls to boost investment income. Individual investors can also benefit from the conservative but effective covered call option strategy by taking the time to learn how it works and when to use it.
more information : https://www.investopedia.com/articles/optioninvestor/08/covered-call.asp
A covered-call strategy is a traditional strategy used by investors to generate stable returns from the market. In this article, we’ll look at the benefits of a covered-call strategy, when to use it, the expected return relative to the market, and the risks of the strategy.
Why Covered-call option strategy?
It is true that the crypto market has much more volatile than stock markets. It is also exposed to much more volatility than other asset classes to several external conditions. These characteristics still lead to crypto being categorized as a “risky asset class” in many places. If it fails to capitalize on a modest bull market, a covered call strategy can generally generate steady profits barring major external influences.
Below are the commonly expected benefits of a covered call strategy.
Revenue Security :
A covered-call strategy earns profit by selling call options and receiving a premium. (This will be progressed at Derbit.) This provides investors with additional profits from selling options and is a key advantage of the strategy. Due to the nature of the strategy, it can be demerit during the huge bull market.
Protection :
Because you own a long position in the spot or futures, the covered-call strategy provides protection against price declines, which is the key to the strategy. By selling the option, you can offset some of your losses by receiving the premium on the call option.
Crypto Localization :
There is a Crypto version of the Black-Scholes model, which is widely used in the existing option market, that Ladder Finance has back-tested and optimized over a long period of time. This provides a slightly better return in certain situations than a typical covered call strategy.
When to use it?
A neutral or slightly bullish outlook on the market: The covered-call strategy is suitable for investors with a neutral or slightly bullish outlook on the market. If we don’t expect our prices to increase significantly, it can generate additional revenue through premiums. This is the specificity of the covered call strategy, and the rigid downside structure and gentle upside curve are key to the strategy.
Expected Profit Rate
Limits to profit maximization : A covered-call strategy limits additional profits unless the price exceeds the strike price of the call option. The overall return on a large uptick may be limited.
What is the risk?
Market risk : It is common for crypto market to have much greater volatility and risk. A covered-call strategy can suffer limited losses from a decline in the price of a stock because it holds a long position in the spot or futures.
Selling and liquidating by maturity or obligation : By selling a call option, the investor has an obligation to fulfill a right if the buyer exercises the option.
Disclaimer
1. The crypto asset management company shall not be held responsible for any losses incurred from crypto asset investments.
2. The company disclaims any liability for losses arising from inaccuracies in the information recognized by the investor.
3. The company shall not be held liable for losses resulting from external factors such as legal, regulatory, or government actions.
