Over the past week, I’ve been selling cash-secured puts on Ethereum (ETH) as it traded between $2,550 and $2,600. Recently, ETH dropped below $2,500, putting my position under pressure. I had 1.5 ETH contracts with a strike price of $2,575, and this downturn forced me to reassess my approach to minimize risk and manage the position effectively.
Going Long with 0.1 ETH and Selling a Covered Call
Instead of going all in, I chose a more measured approach by purchasing 0.1 ETH at the spot price of $2,485. I then sold a covered call on this small position, allowing me to collect premium while holding ETH, a position I'm comfortable with for the long term. This strategy provides income and reduces downside risk, without committing too much capital in a volatile market.
Rolling Down and Adjusting Position Size
For the remaining contracts, I opted for a different strategy:
- Downsized the total position to 1.1 ETH: By reducing the contract size from 1.4 ETH to 1.1 ETH, I lowered my exposure to further price drops.
- Lowered the strike price: I rolled the strike price down from $2,575 to $2,550, which decreases my risk threshold.
- Received additional premium: I also gained extra premium from this adjustment, helping to offset potential future losses.
- Extended my stay in the trade: This adjustment extended my position by an additional 9 days, giving me more time to evaluate the market without being rushed into a decision.
Why I’m Cautious About Going All In
I’m cautious about fully committing to a larger position because of the downside risk. If I were to buy 1.5 ETH at $2,485 and Ethereum continued to dip below $2,000, I’d be stuck with a break-even price of $2,575. That level of exposure in a volatile market is risky, especially when the trend could keep moving lower.
By rolling down and reducing the contract size, I’m better equipped to manage future risk. Should the market continue to drop, it will be easier to make further adjustments, like rolling the position again or buying more ETH at lower prices, without being over-leveraged.
Final Thoughts
This strategy allows me to maintain exposure to ETH while managing risk effectively. I'm comfortable holding the 0.1 ETH and selling covered calls, while reducing the larger put positions to protect my portfolio. The key takeaway here is that by downsizing and extending the trade, I’ve positioned myself to handle future volatility without over-committing to a large, risky position.