Covered Calls in the Age of Volatility

How Reflexivity, Vol Smiles, and Skill-Based Structuring Make Crypto Equities a Unique Yield Engine

Selling covered calls is sometimes portrayed as “picking up pennies in front of a steamroller.” The implication is that you will win frequently in small amounts, but eventually lose one time in a devastating fashion that offsets all the potential gains. I do not disagree with the overall sentiment of the statement, especially as someone who has long espoused the incredible reflexive leverage in crypto for big tail events. However, it would also be incorrect to make a blanket statement that all covered call strategies are inherently useless or money losing. Take for instance the fact that:

1. Realized volatility in crypto equities is not only higher than regular stocks, but due to operational leverage, is often higher than crypto itself. Consider that over the past 100 days, SPX realized vol was 16% whereas MSTR vol was a whopping 112% (~7x higher), while BTC vol was still “only” 53%.

2. In crypto equities, IV is substantially and persistently higher than RV in which the risk-adjusted total return capture for a well-run effort can be positive EV.

3. Crypto often demonstrates a volatility smile instead of a traditional volatility skew, which means on average you are able to earn a richer premium by call-selling than you could otherwise on normal stocks.

Yet these mentioned relationships are never quite stable as vol-of-vol in crypto remains notoriously high. The key is recognizing when is the right time to be aggressively selling (or buying), and if so, the method of implementation, especially on choosing the OTM amount and the expiry duration. In addition, an active approach needs to be mindful of fundamental catalysts unique to the stock, as well as technical positioning (open interests, expiry pins, managed flows etc). With the right amount of intelligence, it is possible to run a better informed discretionary model that can help investors earn a positive yield while holding onto the stocks they already love. Contrary to common belief, a well run strategy in certain circumstances could outperform the stock itself.

In such a case, selling covered calls is more like “collecting rent on an asset you already own”, generating steady income with manageable risks if structured properly. Rather than a rules-based programmatic gamble, it becomes an alpha-based probabilistic strategy that, when executed with dynamic adaptability, allows investors to generate yield while maintaining dynamic exposure to the long-term potential of their holdings. And there simply is no better asset, not even vs. Bitcoin, to harvest skillful volatility with strategic patience than crypto equities.

Selling covered calls often gets a bad rap as “picking up pennies in front of a steamroller”; a strategy that delivers small, frequent wins but risks a rare, devastating loss that wipes out all gains. While there’s some truth to this cautionary take, it’s also an oversimplification. Not all covered call strategies are doomed to fail, especially in the world of crypto equities where market dynamics create unique opportunities.

Here’s why:

• Crypto equities are incredibly volatile. Their realized volatility is often higher than regular stocks and sometimes even higher than Bitcoin itself due to operational leverage. For example, while SPX has seen a 15% realized volatility over the past 100 days, MSTR sits at 85%—about 7x higher, and Bitcoin at XX.
  
  

• Option prices reflect an additional premium on top. In crypto, implied volatility (IV) is often significantly and persistently higher than realized volatility (RV), meaning well-structured covered call strategies can have positive expected value.
  
  

• A unique volatility structure. Crypto equities tend to show a volatility “smile” rather than the traditional “skew,” allowing investors to collect richer premiums when selling calls compared to normal stocks.

That said, these relationships aren’t static as volatility in crypto is famously unpredictable. The key isn’t just selling covered calls blindly, but knowing when to do it, how to structure the trade, and what technical factors to consider, such as:

• How far out-of-the-money (OTM) the strike price should be, and the ideal expiration timeframe
  
  

• Fundamental catalysts unique to the stock
  
  

• Market positioning (open interest, expiry dynamics, ETF flows, etc.)

When done thoughtfully, selling covered calls isn’t a reckless gamble—it’s more like collecting rent on an asset you already own. It provides steady income with manageable risks when structured properly. Instead of being a programmatic, rules-based strategy, it thrives with a probabilistic, skill-based approach that allows investors to earn high yield while staying exposed to the long-term upside of their favorite stocks. Professional patience matters. And when it comes to harvesting volatility skillfully, few assets offer more potential than crypto equities.