According to CoinDesk, research firm 10x Research has suggested a strategy for Bitcoin investors to generate additional income from their spot market holdings. The firm recommends implementing a 'covered strangle' options strategy, which involves holding the underlying asset in the spot market while simultaneously selling out-of-the-money (OTM) call and put options tied to Bitcoin.
The strategy involves selling a $100,000 strike call, which is 50% above Bitcoin's current market price, and a $50,000 strike put, both expiring in December 2024. The premium received from selling the call option, which protects the counterparty from price rallies, and selling the put option, which provides insurance against downtrends, represents the extra yield. 'Selling the call could yield 11%, and selling the put could yield 6%,' Markus Thielen, founder of 10x Research, said in a client note.
This strategy is particularly effective when the market outlook is bullish, but the uptrend is expected to unfold slowly, keeping implied volatility or investors' expectations for price turbulence low. In such conditions, options, particularly OTM call and put options, lose value faster as expiry nears, benefiting sellers. However, the strategy is not without risks and requires a high tolerance for risk, as the risk is leveraged below the level at which the put option is sold, in this case, $50,000.
'Below the lower strike price, both the long stock and short put incur losses, and, as a result, percentage losses are twice what they would be for a covered call position [buy spot = sell OTM call] alone,' Fidelity explained in a 'covered strangle' explainer. Therefore, this strategy is recommended for those who believe Bitcoin's bull market will progress slowly and corrections, if any, will not see prices drop below $50,000. At the time of writing, Bitcoin was trading at $67,170, representing a 58% year-to-date gain.
