After holding a long ETH perpetual contract combined with covered calls for about four weeks, I managed to close the position with a modest gain of around $40. While it wasn't a significant profit, this experience confirmed a critical aspect of my trading strategy: holding long futures contracts simply doesn't feel safe. The market's volatility, particularly with crypto, means that these positions can quickly turn against you, exposing you to higher risk. This realization led me to shift back to my preferred strategy of 1DTE (one-day-to-expiry) put selling.
Why I Prefer Puts Over Calls
My trading style has always leaned toward selling cash-secured puts rather than covered calls. Although covered calls can provide some income, I find puts to be a more effective and safer way to generate returns. Let's break down the differences and why I favor one over the other:
- Risk and Reward Dynamics
- Covered Calls: When selling covered calls, you own the underlying asset (in this case, ETH) and sell call options against it. If the market rises above the strike price, your profit is capped because you might have to sell your asset at that strike price. On the downside, if the market falls, you're still exposed to the full loss of the underlying asset minus the premium received from the call option.
- Cash-Secured Puts: Selling cash-secured puts involves selling put options on an asset without actually holding it. If the asset price falls below the strike price, you might have to buy the asset at that strike price. However, the risk is generally perceived as lower since you're only exposed if the market drops significantly. Plus, you can collect premiums without holding the underlying asset.
- Flexibility and Safety
Covered calls require owning the asset, which can tie up capital and expose you to downside risk if the market crashes. In contrast, cash-secured puts provide more flexibility. If I don't want to hold the underlying asset (in this case, ETH), I can still generate income by selling puts. Moreover, if the market stays neutral or rises, I get to keep the premium without any obligation to purchase the asset. - Market Volatility and Crypto
Crypto markets are highly volatile. Holding long futures contracts in such an environment can be a double-edged sword. While it offers the potential for significant gains, it also comes with high risk. That's why I prefer the safety net of cash-secured puts in the crypto space. Selling 1DTE puts allows me to adjust my positions daily, minimizing exposure to unexpected market moves.
The Decision to Shift Back to 1DTE Put Selling
The four weeks with the long ETH perpetual contract and covered calls provided some valuable insights. Despite the small gain, the strategy felt too risky for my liking. Holding long futures contracts means being continuously exposed to market volatility. With crypto's unpredictable nature, this can lead to sleepless nights, constantly worrying about sudden market drops.
That's why I've decided to shift back to 1DTE put selling. This strategy aligns better with my risk tolerance and market outlook. By selling puts with short expiration (one day), I can generate consistent income while limiting my market exposure. It's a more controlled approach, allowing me to make adjustments quickly without the need to hold any underlying asset.
In summary, while covered calls can be a useful strategy, they don't fit my trading style as well as cash-secured puts do. The ability to navigate market volatility with 1DTE puts makes them my preferred choice, especially in the crypto space.