Locking in Yield Amid Volatility: A Deep Guide to How to Sell Options Against Bitcoin

2.1 Option Value Composition and Seller's Advantage

1. Intrinsic Value: The profit that would be realized if the option were exercised immediately.
2. Time Value (Extrinsic Value): The additional value assigned due to the potential for the asset to move before the expiration date. This is the seller's primary source of profit.

2.2 The Greeks and Seller Risk

• Theta ($\Theta$): Represents time decay. It is positive for the seller; the longer the time, the more beneficial.
• Vega ($\nu$): Represents the impact of volatility changes on the option price. Increased volatility raises the option price (bad for the seller); decreased volatility lowers it (good for the seller). Option sellers are natural sellers of volatility.
• Delta ($\Delta$): Represents the change in the option price for every one-unit change in the underlying asset price. A sold Call option has negative Delta, while a sold Put option has Delta close to -1 or +1 (deep in-the-money).

3.1 Strategy One: Covered Call – Enhancing Returns

• Execution Details: Ideally, sell Slightly Out-of-the-Money (OTM) Call options, where the strike price is slightly above the current Bitcoin market price. This maximizes the premium received and allows the Bitcoin price some room to move up.
• Advanced Application: Roll Out & Roll Up/Down: If you do not wish to be exercised, you can "Roll Out" the sold option to a further expiration date as the current one approaches, adjusting the strike price (Roll Up/Down) simultaneously.

3.2 Strategy Two: Cash-Secured Put – Building a Position at a Discount

• Execution Details: Sell Out-of-the-Money (OTM) Put options, where the strike price is your desired entry point. This method leverages time value, making it more efficient than simply setting a limit order.

4.1 Volatility Trading and Vega

4.2 Introduction to Gamma Scalping

5.1 Platform Selection and Considerations

1. Regulation and Security: Prioritize platforms regulated by major financial institutions or those with strong reputations, such as Deribit (focused on crypto options), CME Futures/Options (regulated traditional financial derivatives), or the options products offered by Binance/OKX.
2. Liquidity: Ensure that the contracts for your chosen strike price and expiration date have sufficient bid and ask depth to prevent Liquidity Risk that could hinder closing the position.
3. Margin System: Understand the platform's margin requirements and forced liquidation mechanisms, which are central to Option Seller Risk Management.

5.2 Operational Procedure and Tax Considerations

1. Opening the Position: On the trading interface, confirm that the action is "Sell to Open," not "Sell to Close."
2. Contract Units: Note that Bitcoin options contracts are typically denominated in units of 0.1 BTC or 1 BTC.
3. Tax Compliance: Premiums received from selling options are generally considered income, and final expiration or closing may result in capital gains or losses. Investors must consult with a professional tax advisor to ensure compliance with the cryptocurrency tax laws in their jurisdiction.

1. "Black Swan" Risk: Although the Covered Call is relatively safe, extreme market events (e.g., exchange failures, sudden regulatory changes) can cause significant losses to both your spot and options positions simultaneously.
2. Upside Cap: The biggest drawback of the Covered Call is limiting your upside potential (income capped at the strike price). You must accept sacrificing potential massive gains for a certain premium.
3. Dynamic Hedging: Successful sellers don't just sell and forget. They actively manage their Delta by buying or selling small amounts of spot assets to maintain risk neutrality, requiring continuous monitoring and capital deployment.