At TerraMatris Crypto Hedge Fund, we actively deploy a range of options strategies to generate income and manage directional exposure. Today, I want to share an elegant and capital-efficient technique we’re using: the synthetic covered call—a method that replicates the payoff profile of a traditional covered call, without the need to hold the underlying crypto asset.
What Is a Synthetic Covered Call?
Traditionally, a covered call involves owning a crypto asset (like ETH) and selling a call option against it. This generates premium income while capping upside beyond the strike price. But what if you want to benefit from the same structure without committing capital to the spot position?
The solution is to create a synthetic long position using options and then sell a call against it—thus forming a synthetic covered call.
Trade Breakdown: TerraMatris ETH Position (Initiated May 21, 2025)
Here’s how we executed the trade:
- Bought: 1 ATM ETH long call expiring July 25, 2025 — Paid 327 USDT
- Sold: 1 ATM ETH short put with same expiry and strike — Received 253.1 USDT
- Net Debit for Synthetic Long: 327 - 253.1 = 73.9 USDT
This synthetic long position mimics holding 1 ETH. If ETH rises, the value of the long call increases. If ETH drops, we are effectively long through the short put obligation (we’re willing to “buy” ETH at the strike price).
To generate yield, we layered on a short call:
- Sold: 1 weekly ETH call option expiring May 23, 2025, strike 2600 — Collected 31.2 USDT
This short call generates income just like in a traditional covered call. If ETH trades above 2600 by Friday, we’ll roll or adjust the position. If ETH stays below the strike, we keep the premium.
Ongoing Strategy Until July 25
Our plan is to sell a weekly call option every week until the long position expires on July 25, 2025. This rolling strategy aims to capture between 300–400 USDT in total premium over the life of the trade.
Assuming ETH is below 2500 on July 25, we’ll likely get assigned on the short put—effectively buying 1 ETH. At that point, we plan to add a spot ETH long position via perpetual futures, locking in exposure and continuing premium-selling activity.
Break-Even and Risk Profile
The initial synthetic long cost us only 73.9 USDT, while weekly call premiums will potentially offset most of the cost. Factoring in the expected 300–400 USDT in income from short calls, our break-even price on ETH by expiry is projected to be in the $2,100–2,200 range.
- If ETH rallies strongly: Our gains will be capped at the call strike, but the trade is still profitable.
- If ETH drops: We may end up long ETH at an effective cost far below current market prices.
This gives us a high-probability structure to generate yield, manage risk, and opportunistically accumulate ETH.
Conclusion
The synthetic covered call is a powerful tool in our options playbook—especially useful when capital efficiency and yield generation are priorities. It allows us to simulate long exposure and earn premium income without needing to allocate full capital to spot ETH.
At TerraMatris, we continue to explore such strategic derivatives plays to balance income, risk, and long-term crypto accumulation.