On May 25, 2025, we executed a position that perfectly illustrates a niche but compelling setup in the crypto derivatives space. We:
- Borrowed 0.01 BTC (worth $1,080 at the time),
- Posted 0.54 ETH as collateral (worth $1,350),
- And sold a cash-settled call option on 0.01 BTC with a strike price of $110,000,
- Collecting a premium of $17 with weekly expiry (May 30).
Let’s break down the rationale, benefits, risks, and variations of this strategy — and why, despite its synthetic nature, it can be a valuable tool in Terramatris' option yield strategies.
The Core Strategy
The basic idea is to monetize a borrowed BTC position by selling a cash-settled call option against it. If BTC stays below the strike at expiry, we pocket the premium. If BTC rises above the strike, we owe the difference in cash, not the actual asset — avoiding delivery risk.
Important nuance: This is not a traditional covered call.
We don’t own the BTC — we’ve borrowed it.
That makes it a synthetic covered call, with an embedded liability to return the BTC.
When This Trade Makes Sense
We like this setup when there's no strong expectation of a significant upside rally, but also no urgency to unwind BTC exposure. Here's why:
- Downside is unaffected: If BTC dumps, we simply repay what we borrowed + interest.
- Upside is capped: We sacrifice potential gains above the strike, but in this scenario, we don’t own BTC anyway, so that upside isn’t truly ours to begin with.
- Premium acts as yield: In flat or mildly bearish markets, we earn incremental yield on BTC exposure we don’t even fund directly.
This structure creates asymmetric optionality: we earn in neutral-to-bearish markets, while having limited pain if BTC rips — provided we manage risk proactively.
When This Trade Can Go Wrong
While selling calls against borrowed BTC can be structurally appealing in range-bound or declining markets, the risk profile changes drastically if BTC rallies hard.
If BTC rises above the strike price (e.g., to $120,000 while our strike is $110,000), the option gets exercised and we owe the difference in cash — $100 in this case. That’s manageable. But:
- We don’t own the BTC — we borrowed it.
- We must return 0.01 BTC, now worth $1,200, not the $1,080 it was at entry.
- Plus, we’re paying interest on the BTC loan during the holding period.
Yes, we can roll the option up and forward, but if the rally is fast or continuous, this becomes expensive and hard to sustain.
Roll-forward: The Tactical Adjustment
If BTC approaches or breaches the strike before expiry, we can roll the call forward:
- Buy back the current option (at a loss)
- Sell a new call at a later expiry — potentially at a higher strike
- Capture more premium and defer obligation
This defers loss realization and potentially recovers it over time — a classic theta farming tactic.
Why It’s Not Truly “Covered”
Let’s be precise: a covered call requires that you own the underlying asset (BTC). In our case:
- We borrow BTC — we don’t control it fully
- The debt remains even after the option expires
- If BTC rallies hard, we face repayment risk at high prices
So while the structure resembles a covered call, it’s closer to a short BTC position with a cash-settled call overlay.
Alternative: Borrowing Stablecoins Instead
One arguably cleaner alternative would be:
- Borrow USDC or USDT against ETH or BTC
- Use that to buy BTC outright
- Sell a true covered call against it
This shifts the exposure from a BTC liability to a stable-coin liability, which:
- Makes P&L easier to track
- Lets us own the BTC
- Still gives us access to yield via covered calls
However, this invites another question:
Why not just use margin accounts from brokers or exchanges?
That’s valid — platforms like Binance or Deribit offer margin functionality that accomplishes similar goals, often with tighter integrations and better liquidity.
The Bigger Picture: Crypto Borrowing and DeFi
The broader insight here is that crypto borrowing is a rich, under-explored domain.
It powers:
- Staking and yield farming
- Liquidity provision in DeFi protocols
- Cross-asset hedging
- Capital-efficient options strategies like ours
As Terramatris continues exploring multi-asset, multi-platform yield generation, crypto collateralized borrowing remains one of the most flexible primitives available.
Final Thought
This approach is worth exploring only when upside explosion seems unlikely and there’s room to roll or unwind gradually. While it might look attractive due to its yield component and downside neutrality, the tail risk in a bullish breakout is real and potentially severe.
We include trades like this in our playbook not because they're “safe,” but because they challenge assumptions, expand strategic thinking, and reflect how crypto’s flexibility can be both a tool and a trap — depending on execution and timing.