At Terramatris we are always exploring new ways to structure option strategies around crypto assets. One of the more interesting challenges we've faced recently is figuring out how to trade covered calls on XRP.
Covered calls are one of the most popular options income strategies because they allow investors to generate option premium while maintaining long-term exposure to an asset. If you're new to covered calls, start with our guide: How to Generate Income With Ethereum Covered Calls.
While Ethereum options markets are relatively mature, XRP options remain more challenging due to liquidity, settlement, and collateral limitations. This article explores one workaround we tested using Bybit and Deribit.
The Challenge: Collateral Rules on Deribit
Deribit lists XRP options, but they are settled in USDC. At the time of writing, there is no way to post XRP directly as collateral for call selling. This complicates things because in a “classic” covered call setup, you’d hold the underlying asset (XRP in this case) and sell calls against it.
Instead, Deribit requires USDC margin. That forced us to think a bit more creatively.
Our Solution: Bridging Bybit and Deribit
We came up with what we believe is a smart workaround:
- Collateralize XRP on Bybit – We locked up some of our XRP holdings on Bybit as collateral.
- Borrow USDC – Against that XRP, we borrowed USDC, paying about 11% annual interest.
- Transfer USDC to Deribit – The borrowed USDC was moved to Deribit to serve as option margin.
- Replicate XRP exposure – Since we wanted the trade to mimic a traditional covered call, we bought long XRP perpetual futures on Deribit with 25x leverage.
Effectively, this setup allowed us to hold XRP exposure (via leveraged futures) while still being able to sell call options on Deribit.
Why This Works (and Why It’s Imperfect)
This approach isn’t a perfect covered call structure, but it comes surprisingly close:
- The borrowed USDC plays the role of collateral for selling calls.
- The long XRP futures replicate holding spot XRP, giving us the underlying exposure.
- The sold calls then generate premium just like in a standard covered call strategy.
Of course, there are trade-offs:
- Borrowing USDC at 11% creates a financing cost that eats into returns.
- Using 25x leverage on the long futures introduces liquidation risk if not managed carefully.
- There is ever changing funding fee for holding perpetual futures
- It’s more complex than simply selling calls against spot XRP.
Still, as an experimental structure, it’s a viable workaround until platforms like Bybit start offering XRP options with XRP collateral support.
What This Taught Us About Crypto Covered Calls
One of the biggest lessons from this experiment is that crypto covered calls are often more complex than their traditional stock market counterparts.
In a traditional covered call, an investor simply owns the underlying asset and sells a call option against that position. In crypto markets, collateral requirements, settlement rules, perpetual futures, borrowing costs, and exchange-specific limitations can all affect implementation.
This is one reason we continue to focus primarily on Ethereum options. Ethereum options markets currently offer deeper liquidity, tighter spreads, more strike availability, and simpler strategy implementation compared to many alternative crypto assets.
Still, XRP remains an interesting case study because it demonstrates how investors can adapt when direct covered call implementation is not available.
Looking Ahead
For us, this was a valuable exercise in thinking creatively about option structures in crypto. It’s an experiment we’ll continue to fine-tune, exploring different leverage levels, roll strategies, and ways to minimize financing costs.
The crypto options landscape is evolving quickly. For now, this setup gives us a way to monetize our XRP exposure through covered calls, even if it requires some creative bridging between platforms.