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Arthur Hayes Shares New Yield-Producing Strategies for Options Traders

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Arthur Hayes, the outspoken CEO of major crypto derivatives exchange BitMEX, shared several strategies for how yield-hungry crypto holders can earn income from their holdings, using derivatives.

Arthur Hayes. Source: a video screenshot, Youtube, Distributed

In Hayes’ own words, his blog post, published today, is addressed directly to “those who want to earn a yield on their coin, those who need to pay bills in fiat without selling the coin, and those who need to smooth out their future return profile.”

First off, Hayes explained how it is possible to obtain “physical” bitcoin without being exposed to price risk by using futures contracts to hedge with. This is essentially done by first buying bitcoin with fiat currency, and then short-sell bitcoin futures contracts worth the same amount of bitcoin. As a result, the trader will have a price-neutral bitcoin inventory, which can now be put to work to generate yield.

Hayes went on to say that “Call Overwrite” is one strategy that in his view will become more prevalent in 2020, using an example where a bitcoin holder would sell “out of the money call options” to potentially generate a 10% yield in just one month.

“These trades will be negotiated OTC [over-the-counter, meaning off exchanges],” Hayes explained, while adding:

“Custodians of bitcoin will sell calls in size to large market makers. These custodians will then offer a monthly yield to customers who allow them to encumber their bitcoin. Finally, there is a real revenue stream open to crypto custodians.”

Hayes also went into great detail on several other price-neutral trading strategies in the post, including a suggestion on how large miners may sell options contracts to generate a stable fiat revenue in order to cover their monthly operating expenses.

“Similar to the bitcoin holder, the miner is relatively price / implied volatility insensitive. The miner’s main concern is meeting his monthly fiat bills. If the premium offered meets these goals, the miner is happy,” Hayes wrote while suggesting that a miner who has a rough idea of how much bitcoin he can mine each month can then sell an equivalent amount of bitcoin call options to generate fiat revenue.

In 2020, “bitcoin needs to prove it is worth its salt as a true safe-haven asset in macroeconomic volatility. Crypto traders will rejoice as the low volume phase wanes. Those who demand income from their silicon enabled monetary instrument will be able to sell volume and clip a coupon. It’s like being on Oprah, [everybody] gets something from heightened bitcoin volatility,” Hayes concluded his post.

In March 2019, Hayes predicted that bitcoin price will more than double and reach USD 10,000 per coin in 2019.
Learn more: How to Bet on Bitcoin Volatility Using Bitcoin Options