Your First Covered Call

Step-by-step tutorial for creating your first covered call using FORGE.

What You’ll Learn

By the end of this tutorial, you’ll:

• ✅ Understand covered call mechanics
• ✅ Price your first covered call
• ✅ Analyze payoff scenarios
• ✅ Add it to your portfolio

Time Required: 10 minutes Difficulty: Beginner Prerequisites: Basic understanding of options

Scenario Setup

Let’s say you:

• Own 1 BTC (worth $50,000)
• Want to generate extra income
• Are okay selling at $55,000
• Willing to hold for 30 days

Goal: Earn premium while keeping upside potential.

Step 1: Navigate to Structure Tool

1. Click Structure in the navigation
2. Select “Covered Call / Put Selling” from product dropdown
3. You should see the parameter form

Step 2: Set Your Parameters

Basic Parameters

Configure these settings:

Advanced Parameters (Optional)

Keep defaults for now:

• Risk-Free Rate: 5%
• Option Type: Call
• Quantity: 1

Step 3: Review Pricing Results

After entering parameters, you’ll see:

Fair Value

Premium Received: ~$2,000-$2,500

This is the income you earn immediately!

Greeks

Delta: ~0.40 (40% directional exposure)
Theta: ~$70/day (time decay working for you)
Vega: ~$35 (volatility sensitivity)

Payoff Diagram

The chart shows three zones:

Green Zone (BTC < $55,000):

• You keep BTC + premium
• Best scenario for covered call

Yellow Zone (BTC ≈ $55,000):

• Maximum profit zone
• You make $5,000 price gain + $2,000 premium

Red Zone (BTC > $55,000):

• Opportunity cost zone
• You cap gains at $55,000

Step 4: Analyze Scenarios

Scenario A: BTC Stays Flat ($50,000)

Outcome:
✅ Keep your BTC (still worth $50,000)
✅ Keep $2,000 premium
Total: $52,000 (4% gain in 30 days)

Annualized: 48% APY!

Scenario B: BTC Rises to $55,000

Outcome:
✅ BTC worth $55,000 (+$5,000)
✅ Keep $2,000 premium
Total: $57,000 (14% gain)

This is your maximum profit!

Scenario C: BTC Moons to $70,000

Outcome:
⚠️ BTC called away at $55,000
✅ Profit: $5,000 + $2,000 = $7,000
Total: $57,000

You miss the extra $15,000 gain 😢
But still made $7,000! (14%)

Scenario D: BTC Crashes to $40,000

Outcome:
⚠️ BTC worth $40,000 (-$10,000)
✅ But you have $2,000 premium
Total: $42,000

Loss: -$8,000 (-16%)
vs -$10,000 if you just held (premium helped!)

Step 5: Understand Break-Even

Your break-even point:

Break-even = Spot - Premium
Break-even = $50,000 - $2,000 = $48,000

Meaning: As long as BTC stays above $48,000, you don’t lose money.

Step 6: Make Your Decision

Choose “Yes” if:

• ✅ You’d be happy selling at $55,000
• ✅ You don’t expect huge rally
• ✅ You want steady income

Choose “No” if:

• ❌ You expect BTC to moon
• ❌ You can’t accept capped gains
• ❌ You need full upside

Step 7: Add to Portfolio

If you decide to proceed:

1. Click “Add to Portfolio” button
2. Position gets saved
3. Navigate to Portfolio to track it

Your portfolio will show:

• Current value
• P&L
• Greeks
• Days to maturity

Step 8: Monitor Your Position

Daily Monitoring

Check these metrics:

• BTC price vs your strike ($55,000)
• Time remaining (theta decay)
• P&L (profit/loss)

Weekly Review

Ask yourself:

• Is BTC approaching strike? (might get called away)
• Has volatility changed? (affects future premium)
• Ready to roll into next covered call?

Advanced: Rolling Your Position

After 30 days, you can “roll” the position:

If Not Exercised

1. Original call expires worthless ✓
2. Sell new call (e.g., $60k strike, 30 more days)
3. Collect another premium
4. Repeat monthly for income stream

If Exercised

1. BTC sold at $55,000
2. Take $57,000 total proceeds
3. Either:
   a) Buy back BTC and sell new call
   b) Move to different asset
   c) Take profits

Key Lessons

1. Trade-Off Understanding

You trade: Unlimited upside
You get: Immediate income + some protection

2. Strike Selection Matters

Close strikes (5% OTM): More premium, more likely to exercise
Far strikes (20% OTM): Less premium, less likely to exercise

3. Volatility is Your Friend

High IV → High premiums
Low IV → Low premiums
Check IV before selling!

4. Time Decay Works For You

Every day: +$70 from theta
No move needed: Still profitable

Common Mistakes to Avoid

❌ Mistake 1: Selling on Low IV

Bad: IV = 40% → Premium = $800
Good: IV = 100% → Premium = $3,500

Wait for high volatility!

❌ Mistake 2: Too Close Strike

Bad: $51,000 strike (2% OTM)
Gets called away easily, miss rally

Good: $55,000 strike (10% OTM)
Room for upside, good premium

❌ Mistake 3: Selling Before Events

Bad: Sell call before Bitcoin ETF decision
Event happens → Price moons → Called away

Good: Sell after major events

❌ Mistake 4: Not Rolling

Bad: Sell once, collect one premium
Good: Roll monthly for 12+ times
Compound income!

Practice Exercise

Try these scenarios in the Structure Tool:

Exercise 1: Conservative

• Strike: $60,000 (20% OTM)
• What’s the premium?
• What’s the trade-off?

Exercise 2: Aggressive

• Strike: $52,000 (4% OTM)
• Higher premium?
• More likely to exercise?

Exercise 3: Volatility Test

• Change IV from 60% to 120%
• How much does premium change?

Next Steps

Congratulations! You’ve learned covered calls. Next:

• Simple PPN Example - Capital protection
• Covered Call Mechanics - Deep dive
• Understanding Greeks - Risk metrics

Real Implementation

Ready to try this live?

Structure Your Covered Call →

Pro Tip: Start with one covered call first. After you’re comfortable, you can scale to multiple positions and create a systematic income strategy.

Community Strategy: Many FORGE users sell 30-day calls at 10-15% OTM strikes monthly. This generates 3-5% monthly income in sideways markets.