On Tuesday, a significant ether (ETH) trade involving call options expiring in June and September took place on Deribit, sparking discussions within the trading community. The trade, which was processed over the counter (OTC) and reported to Deribit, involved the purchase of over 57,000 contracts of ether’s June expiry call option at the $2,200 strike price and the sale of an equal amount of contracts of September expiry call at $2,200, with Singapore-based options trading giant QCP Capital acting as the market maker.
Luuk Strijers, Chief Commercial Officer at Deribit, explained that this trade represents a “calendar spread” strategy, designed to profit from a significant ether price movement away from the spread’s strike price. According to Strijers, the investor likely expects volatility or the price of ETH to increase after the June expiry, which are the primary motivations for trading calendar spreads.
The trade is considered a proxy for institutional activity and indicates the use of advanced trading strategies in the crypto market. Griffin Ardern, a volatility trader from crypto asset management firm Blofin, suggested that while the trade initially appears to be a calendar spread, it could actually be a “rollover” of a “covered call” strategy from June expiry to September expiry.
The covered call strategy involves selling a call option against a long position in the spot market to generate additional income. It is employed when holders do not anticipate a significant price rally in the near term. By selling a call option, the covered call trader receives a premium and is obligated to deliver shares to the call buyer at a predetermined price on or before the option’s expiry date. If the underlying asset remains below the strike price, the trader retains the entire premium as extra income on top of the spot market holding. However, the trader misses out on extended rallies if the underlying asset experiences significant price increases.
Ardern explained that the market participant, likely an ETH holder, initially set up a covered call strategy by selling June expiry calls at $2,200 earlier this year. The recent trade involved buying back the June expiry calls and selling September expiry calls through the calendar spread, effectively rolling over the covered call position to a longer-term expiry. The open interest in the June expiry $2,200 call decreased, while the open interest in September expiry increased, indicating the trader’s rollover from June to September.
Based on the behavior of this trader, Ardern suggested that they are likely a whale holding significant amounts of coins, possibly a miner. Markus Thielen, Head of Research and Strategy at Matrixport, shared a similar opinion, stating that the strategy could generate double-digit annualized returns. Selling covered calls is seen as a preferred source of yield in the crypto market, especially due to the collapse of borrowing and lending markets in the past year.
QCP Capital, a market participant, noted that selling volatility has become a robust source of yield, with interest in selling covered calls or puts to earn yields. Investors earn a yield on their assets, but the option seller assumes the risk of the option being exercised.
Overall, this trade highlights the increasing sophistication and use of advanced trading strategies in the crypto market, with institutional players exploring options trading and volatility-related strategies to generate returns.