Covered Calls
The simplest income strategy in options. You own crypto, you sell someone the right to buy it from you at a higher price, and you collect the premium upfront — no matter what happens at expiry.
What you need
You must already own the crypto. The call is "covered" because your position backs the obligation — you are never selling something you do not have.
What you earn
The premium is credited to your account the moment you sell the call. It is yours unconditionally — whether the option expires worthless or gets exercised.
The trade-off
You cap your upside at the strike price. If BTC rockets past your strike, you miss the extra gain. You are being paid to accept that limit — and it is often a very good deal.
How covered calls change your risk profile
Naked long spot
Market moves ±5%
Long spot + short call
Market moves ±5%
The key insight
Selling the call lowers your long delta. On the downside you are always better off than naked spot — by exactly the premium received. On the upside, your gains above the strike belong to the buyer.
How to trade a covered call
Six steps from owning crypto to collecting your first premium.
Buy the underlying crypto first
You must own the asset before selling a covered call. Buy BTC, ETH, or SOL on Deribit and hold it in your account. The position is "covered" because your crypto backs the obligation to deliver — you are never selling something you do not own.
Choose your strike price
Select a strike above the current spot price (out-of-the-money). A strike 5–15% above spot gives you upside room while still collecting meaningful premium. Use the Yield Scanner in your dashboard to compare strikes and their annualised yields side by side.
Choose your expiry
Weekly to monthly expiries (7–30 days) are the sweet spot for income generation. Theta decay — the erosion of time value — accelerates in the final weeks before expiry, meaning you collect premium faster as the date approaches. Longer expiries offer more premium but tie up your position.
Sell the call and collect premium
Place a sell order for the call option at or near the bid price. The premium is credited to your account immediately and is yours to keep regardless of what happens at expiry. This is your income — unconditional.
Monitor and manage before expiry
Check your position as expiry approaches. If the underlying has moved significantly above your strike, consider rolling (see the Rolling section). If it has stayed below, you can let the call expire worthless and repeat the process.
Manage at expiry
If the price stays below your strike at expiry, the call expires worthless — you keep your crypto and the full premium. If the price rises above your strike, your crypto gets called away at the strike price. You still keep the premium, and you sold at a price you agreed to upfront. Both outcomes are profitable.
Key takeaway: Covered calls are not speculation — they are income generation. You are being paid to potentially sell your crypto at a price you are already happy with. The premium is yours regardless of outcome.
Risks of covered calls on crypto
Every risk below comes with a mitigation. Understanding both sides is what separates professional income traders from gamblers.
Capped upside
MediumWhen you sell a covered call, you agree to sell your crypto at the strike price. If BTC rallies from $60,000 to $80,000 and your strike was $65,000, you miss the extra $15,000 gain above the strike. Your profit is capped at the strike plus the premium collected.
Mitigation
Choose strikes you are genuinely happy to sell at. If you want more upside exposure, select a higher strike — you will collect less premium but retain more of any rally.
Downside is reduced — but not eliminated
HighSelling a call reduces your effective long delta. Naked long spot losing 5% costs you 5%. With a covered call, that same 5% drop costs you 5% minus the premium received. However, a major drawdown will still hurt — the premium provides a cushion, not full protection.
Mitigation
Only run covered calls on crypto you are genuinely happy to hold through a drawdown. The premium income is a real reduction in risk, but it does not replace a sound position-sizing strategy.
Crypto volatility spikes
HighCrypto can move 20–40% in days. A sudden spike can push your position deep in-the-money, forcing a decision: let the asset get called away, buy back the call at a loss, or roll the position. Traditional covered call playbooks were not designed for this speed.
Mitigation
Use the Yield Scanner to favour strikes with a healthy buffer above spot. Have a rolling plan in place before you enter the trade — decide in advance at what price you will roll rather than reacting emotionally.
No early assignment on Deribit (advantage)
LowOn Deribit, all options are European-style — they can only be exercised at expiry, not before. This eliminates early assignment risk entirely, which is a significant advantage over equity options on US exchanges where American-style options can be exercised at any time.
Mitigation
No action needed. This is a structural advantage of trading on Deribit. Be aware that if you ever trade on other platforms, the rules may differ.
Liquidity and bid-ask spread
MediumIlliquid strikes can have wide bid-ask spreads, meaning you sell at the bid and buy back at the ask. On low-volume expiries or far out-of-the-money strikes, this spread can eat a significant portion of your premium — sometimes 20–40% of the total.
Mitigation
Stick to liquid strikes near the money and popular expiries (weekly, end-of-month). The Yield Scanner shows bid and ask separately — avoid strikes where the spread is more than 15–20% of the mid price.
Tax and regulatory uncertainty
MediumOptions income on crypto is treated differently across jurisdictions. In many countries, each premium collected is a taxable event in the year received. Some jurisdictions also treat the assignment of crypto as a disposal. The rules are still evolving.
Mitigation
Consult a tax professional familiar with crypto derivatives before scaling your strategy. Keep detailed records of every trade: entry date, strike, expiry, premium received, and any buyback cost.
Platform and counterparty risk
MediumDeribit is a centralised exchange. Your funds are held on the platform, and you are exposed to exchange risk — hacks, insolvency, or regulatory action. This is a real risk that is separate from the strategy itself.
Mitigation
Only keep on the exchange what you need for active positions. Withdraw profits regularly. Deribit holds client funds in cold storage and has a strong track record, but no centralised exchange is risk-free.
How to roll a covered call
Rolling means closing your existing call and opening a new one — usually at a higher strike, a later expiry, or both. It is the primary tool for managing a covered call that has moved against you.
Identify when to roll
Consider rolling when your call is in-the-money (the underlying has risen above your strike) and you do not want to lose your position, or when your call has decayed significantly and you want to capture more premium before expiry.
Buy back the existing call
Close your short call by buying it back at the current market price. If the underlying has risen, this will cost more than you originally received — you are taking a loss on the option leg. This is normal and expected when rolling up.
Sell a new call
Immediately sell a new call at a higher strike, a later expiry, or both. The goal is to collect enough new premium to offset the cost of buying back the old call, ideally with a net credit.
Roll for a net credit when possible
A net credit roll means the new premium received exceeds the buyback cost. This is the ideal outcome — you extend your position and collect additional income. A net debit roll is sometimes justified to avoid assignment and preserve a large unrealised gain.
Know when to let it go
Sometimes the best decision is to let the call expire in-the-money and have your crypto called away. If the strike plus premium collected represents a satisfactory return, taking the profit and redeploying capital is a valid strategy — not a failure.
Pro tip: On Deribit, you can execute a roll as two separate orders or use the combination order book to enter both legs simultaneously, reducing execution risk.
Glossary of terms
Every term you will encounter when trading covered calls on crypto options.
Ready to put this into practice?
Use the live Yield Scanner and Covered Call Calculator in your dashboard to find real opportunities right now.