How to generate the passive income by covered call strategy 


Last Updated on April 13, 2023 by admin

Do you have any information on the covered call? How does it help to generate passive income in cryptocurrency? A covered call is a common options strategy that long-term investors use to yield good income from their crypto portfolio. 

If the covered call is correctly managed, then selling the call option against the crypto holdings is a great way to generate passive income. By selling the call options against the crypto-owned asset, the underlying long position will effectively cover the short call. 

Read the article to know how the covered calls help to make passive income. 

Why use the covered call strategy 

Here are some of the major reasons behind using the covered call strategy to lower the prices and generate passive income

Theta decay impact Theta decay is the major reason why the covered call strategy is broadly used. 

During the theta decay impact, all the things remain the same, but premium options lose their value as the approaches expire and work in favor of the seller. For example, the theta decay accelerates when the contract moves close to the expiration date. 

Due to this, the benefits of option sellers from holding short positions remain as long as possible.  

Implied volatility effect

The covered call strategy indicates that the implied volatility either remains the same or decreases. If the implied volatility is high, it will work against the covered call strategy. 

On the other hand, the drop in implied volatility is useful for covered call writers and results in lower price options in cryptocurrency.

Margin requirements 

With the help of portfolio margin mode, the USDC derivatives account holders with the minimum net equity can benefit from margin requirements when trading involves future and options contracts. 

The risk-based approach is used by portfolio margin mode to reduce the margin requirements. This method reduces the margin requirements for the covered call strategy by making the long positions against the short position. 

Tips to increase the profits from covered call strategy 

Here are some tips to help you increase the potential gains from the covered call strategy. 

  • Sell the short calls between 30-60 days of expiry to increase the time decay and allow flexibility to adjust the position if required. 
  • It is suggested to look at the market signs and determine how it is moved from high volatility environment to a low volatility environment. 
  • It is suggested to select the strike price at the level at which you are willing to sell your underlying assets, only if the buyer is also agreed. 

Pros of covered call strategy 

  • The long-term holders can generate passive income against the crypto portfolio.
  • Theta decay always works in favor of the covered call strategy 
  • Selling the covered calls works like a partial hedge against to decline in the underlying asset. 


There are many trading strategies available today. Every trading strategy has different functions and risk levels. But the covered call strategy is the best trading strategy that provides a unique way for users to make money and hold the crypto assets against the underlying assets. 

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