Payments-focused cryptocurrency XRP reached a notable peak of $3.40 in January; however, it has since experienced a significant decline of 30%, currently trading around $2.40. This drop has not deterred traders from betting on XRP’s potential for recovery, as evidenced by the increasing interest in the $5 call option on Deribit.
Despite the 30% downturn, the $5 call option remains the most favored position among traders, suggesting its appeal lies in the considerable upside potential it presents. If XRP exceeds the $5 mark, buyers stand to benefit substantially. Nonetheless, it’s essential to note that this trend does not automatically indicate a bullish stance among the trading community.
At the time of reporting, the $5 call option boasts a notional open interest of $3.84 million, making it the highest among all XRP strikes on the exchange, as per data from Deribit Metrics. Notional open interest indicates the total dollar value of all active options contracts, with each contract representing one XRP on Deribit.
According to Lin Chen, Deribit’s Asia Business Development Head, “Most of these are covered calls.” This insight sheds light on the notable buildup of open interest for these out-of-the-money (OTM) calls, reflecting a strategic approach by traders.
The covered call strategy, which involves selling higher-level OTM calls while simultaneously holding the underlying asset—in this case, XRP—enables traders to collect premiums from their call sales. This not only provides potential income but also mitigates losses in the event of an unexpected market rally.
This strategic approach is not exclusive to the cryptocurrency realm; it is also popular in traditional markets, as well as in trading assets like bitcoin and ether. As traders navigate the current volatility surrounding XRP, the covered call strategy offers a prudent way to maximize returns while minimizing risk.
