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Selling a Call Option (Short NFT Covered Call)
Why a trader might choose to sell a Call option
For everyone who buys a Call option, there is a seller on the other side of the deal.
When someone buys a Call option, they are buying the right to purchase the NFT if the floor price is above the strike price by a certain date.
This means the seller of the Call option is agreeing to sell the NFT at the strike price. If the floor price is above the strike price, the Call buyer can “exercise” his option and purchase the NFT from the Call seller.
In order to sell a Call option, you must collateralize the NFT. This is known as selling a “covered call” because you hold the asset to cover your obligation if required.
Selling covered calls is an ideal strategy for an NFT holder who has a long-term bullish outlook on the project, but is short-term neutral or bearish. This strategy allows the NFT holder to generate income by selling Call options and profiting on the premiums.
The seller of the Call option profits when the option expires worthless (i.e., when the floor price is below the strike price).
If the floor price suddenly moons above the strike price, the Call option seller may be forced to sell the NFT. In this scenario, the seller’s profit would be limited to the premium they received when they sold the Call option (plus the sale of the NFT at the strike price).
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