Options Strategies
Once you understand calls and puts, the power comes from combining them. Covered calls earn premium on holdings you already own. Cash-secured puts get paid to wait for a dip. Iron condors profit from range-bound markets. Protective puts insure against crashes. Each has a different risk-reward profile - pick the one that matches your market view.
Strategy Selector
Sell a call against ETH you own. Earn premium. Cap your upside. Works best when you expect ETH to stay flat or rise modestly.
Strategy Comparison
Iron Condor Builder
Adjust the short/long strikes for both the put spread and call spread. The zone between your short strikes is your profit zone.
Covered call: earn premium on holdings
A covered call is one of the most common income strategies. You own ETH and sell a call option at a strike slightly above the current price. You collect premium upfront. If ETH stays below the strike at expiry, you keep the premium and your ETH. If ETH rises above the strike, your ETH gets "called away" - you sell it at the strike price. You've earned the premium and sold at the strike, but you missed any upside beyond the strike.
The key metrics: max profit = strike - spot + premium. If ETH is at $2,000 and you sell a call at $2,200 for $80, your max profit is $2,200 - $2,000 + $80 = $280 per ETH. Your max loss is theoretically unlimited (if ETH goes to $10,000, you only get $2,200 - you missed $7,800 of upside). The breakeven is spot - premium = $1,920.
In DeFi, Lyra's LP pools implement covered calls automatically - you deposit ETH, the AMM quotes short calls against your collateral, and you earn the bid-ask spread plus the short call premium. You remain exposed to ETH downside but collect income along the way. The protocol handles delta hedging so you don't have to.
Cash-secured put: get paid to wait for a dip
A cash-secured put means selling a put option and holding enough USDC to buy the underlying if assigned. You collect premium and wait. If ETH stays above the strike, the put expires worthless and you keep the premium. If ETH falls below the strike, you're assigned - you buy ETH at the strike price. Your effective cost basis = strike - premium received.
This is the DeFi equivalent of a limit order with a rebate. You're saying "I'm willing to buy ETH at $1,800, and I'll pay you $80 to let me wait." If ETH drops to $1,700, you get assigned and buy at $1,800 - but you collected $80, so your net cost is $1,720. You bought the dip and got paid for patience.
Risk: if ETH drops to $500, you're still buying at $1,800. You can't "miss" the dip - you bought it. The premium you collected reduces your cost but doesn't eliminate the loss from buying at above-market prices. The strategy only wins when you genuinely wanted to own ETH at or near the strike price.
Iron condor: profit from range-bound markets
An iron condor combines a bull put spread (sell a put at a lower strike, buy a cheaper put at an even lower strike) and a bear call spread (sell a call at a higher strike, buy an even higher call). You profit when the underlying stays between your two short strikes. The wider the range, the more profit but the lower the probability of success. The narrower the range, the higher the premium per trade but the more often you'll be assigned.
Let's say ETH is at $2,000. You sell a $1,800 put and buy a $1,700 put (bull put spread), and sell a $2,200 call and buy a $2,300 call (bear call spread). You collect $40 in net premium. If ETH stays between $1,800 and $2,200 at expiry, all options expire worthless and you keep $40. If ETH drops below $1,800, your long put ($1,700) limits your loss. If ETH rallies above $2,200, your long call ($2,300) limits your loss. Max loss = spread width ($100) - net premium ($40) = $60 per share.
Iron condors work best when IV is high (expensive options to sell) and you expect low realized volatility (the price doesn't move much). They're a classic "volatility arbitrage" trade - you're selling options that the market prices with high implied volatility but you believe will be cheap in practice.
Protective put: insurance for your ETH
A protective put is simply buying a put option to hedge a long ETH position. You pay premium for the right to sell at the strike. If ETH crashes, your put gains value and offsets the loss on your ETH. If ETH rallies, you participate fully (minus the premium cost). It's the most straightforward hedging tool.
If you own ETH at $2,000 and buy a put at $1,800 for $60, your max loss is capped at $2,000 - $1,800 + $60 = $260 (about 13%). If ETH goes to $3,000, you still own ETH worth $3,000 minus the $60 put premium = $2,940. The put is like car insurance - you pay a premium and are glad you have it when something goes wrong, but it limits your upside by the cost.
The put's delta of -1 near the strike means as ETH falls $1, the put gains roughly $1, keeping your portfolio value stable. This is why traders buy protective puts when they're worried about near-term downside - the put's gains offset the ETH losses exactly, giving you time to decide whether to hold, add, or exit.
Choosing the right strategy
The strategy you choose depends on three things: your market view (bullish, bearish, or neutral), your conviction level (how sure are you?), and the volatility environment (are options expensive or cheap?). High IV means option premiums are generous - it's a good time to be a seller (covered calls, cash-secured puts, iron condors). Low IV means options are cheap - it's a better time to be a buyer (protective puts, call spreads).
Frequently asked questions
- What's the difference between a covered call and a cash-secured put?
- A covered call requires you to own the underlying asset - you sell a call against ETH you hold. If ETH rises above the strike, your ETH gets called away but you keep the premium. A cash-secured put requires you to have cash (not the asset) to buy if assigned - you sell a put and collect premium, hoping the asset doesn't fall below strike. Both earn premium income but have different collateral requirements and risk profiles.
- When is an iron condor the right strategy?
- Iron condors profit when the underlying stays within a range - ideal in low-volatility environments, before scheduled news events (FOMC, earnings) where you expect reduced movement, or when IV is high (you want to sell expensive options). The trade loses money if the price breaks out sharply in either direction. You max out at the net premium if price stays between your short strikes; you lose the full spread width minus premium if price moves beyond either long strike.
- What's the main risk of selling covered calls in DeFi?
- The main risk is opportunity cost - if ETH rallies 50%, you're stuck at the strike price and miss the upside. In DeFi LP pools, this can be compounded by impermanent loss if you provided liquidity rather than just holding. Also, in volatile crypto markets, the short call's delta can change rapidly, meaning your hedge is constantly out of balance. The premium you earn is the insurance premium for accepting this upside ceiling.
- How does a protective put differ from a short call hedge?
- A protective put is buying insurance (a long put) to hedge a long position - you own ETH and buy a put at a strike near your cost basis. If ETH crashes, your put gains value and offsets losses. It costs you the premium (like insurance) but has no upside cap. A short call (covered call) is the opposite - you sell the insurance and earn premium, but you cap your upside. Protective puts are expensive in high-IV environments; short calls are profitable then but limit your gains.
- Can these strategies be done on-chain?
- Yes - Lyra lets you sell covered calls by depositing ETH as LP collateral and having the AMM quote short calls against your position. Hegic lets you sell cash-secured puts with USDC collateral. For iron condors and more complex multi-leg strategies, Dopex's option decks let you buy and sell multiple strikes and expirations in a single transaction. On-chain settlement uses Chainlink price feeds at expiry, similar to how traditional options clearing works.
- What's the risk-reward of selling puts vs owning ETH?
- Selling a cash-secured put lets you earn premium while waiting for a better entry - if ETH drops to the strike, you're assigned and buy at a price lower than today's market (adjusted for the premium you collected). If ETH stays above strike, you keep the premium and can try again. It's a way to get paid to be patient. The risk is that ETH goes to zero (you still buy at strike) or that you miss the rally while waiting. The net cost basis = strike - premium received.