Crypto glossary
Covered call
A covered call means holding a crypto asset and selling call options on it to collect premium, in exchange for capping upside above the strike price.
In a covered call the seller already owns the underlying, for example 1 BTC, and sells a call against it. They receive the premium immediately. If price stays below the strike at expiry, the option expires worthless and the seller keeps both coin and premium; if price ends above the strike, the coin is effectively sold at the strike.
It is one of the most common income strategies in crypto because implied volatility, and therefore premiums, are high. Funds, treasuries and individual holders run it manually on Deribit or through automated products such as DeFi option vaults and the dual investment offers of centralized exchanges.
The strategy does not protect against falls: if the asset drops 40 percent, the premium offsets only a small part of the loss. Its main cost is missed upside during strong rallies, which in crypto can be large, and repeatedly selling calls through a bull run can leave the holder with fewer coins than they started with.
Example
An investor holding 10 ETH sells a one-month call at 4,000 dollars for 0.25 ETH in total premium; ether rallies to 4,600, so the coins are called away at 4,000 and the gain above that level is forgone.