Real-World Case Studies

Learn from Success and Failure | 20+ Detailed Examples

📚 How to Use These Case Studies

Each case study follows a structured format:

Background: The scenario and key players
Strategy: What was implemented
Execution: How it was done
Outcome: Results and P&L
Lessons: Key takeaways

Categories: Income Generation | Capital Protection | Volatility Trading | Disasters & Lessons

Income Generation

Case Study 1: The Bitcoin Covered Call Income Machine

Background:

Trader: Michael, retail investor
Date: 2019-2020
Capital: 10 BTC (acquired at $3,000 avg = $30,000 cost basis)
Bitcoin Price: $8,000 at start
Goal: Generate monthly income without selling BTC

Strategy: Rolling monthly covered calls

Execution:

Month 1 (Jan 2020): BTC @ $8,000
- Sell 10x $9,000 calls (12.5% OTM) @ $400 each
- Premium: $4,000
- Yield: 5% monthly on $80k position

Month 2 (Feb): BTC @ $9,500 (calls exercised!)
- Sold BTC at $9,000 (filled from calls)
- Profit: ($9,000 - $3,000) × 10 = $60,000
- Total with premium: $64,000

Mistake: Got called away, missed COVID crash recovery!

Outcome:

Pros:
✅ Generated $4,000 income (Month 1)
✅ Sold at profit ($9k vs $3k cost)
✅ Total gain: $64,000 (213%)

Cons:
❌ BTC went to $60,000 in 2021
❌ Missed $510,000 in additional gains
❌ Should have used higher strikes or held

Lessons:

Covered calls cap upside - Only use if willing to sell at strike
Strike selection matters - Too close = called away too easily
Consider rolling up and out - Extend expiration, raise strike
Bull markets punish covered calls - Better for sideways markets

Better Approach:

Use 20-30% OTM strikes in bull markets
Accept lower premium to keep upside exposure
Or only sell calls on portion of holdings (50%)

Case Study 2: Range Accrual Success Story

Background:

Investor: Sarah, income-focused
Date: Mid-2019 (sideways Bitcoin market)
Capital: $200,000
Bitcoin Range: $4,000 - $6,000 for months
Goal: Beat bond yields (2%)

Strategy: 6-month range accrual campaign

Structure:

Range: $4,000 - $6,000 (±20% from $5k center)
Daily accrual: 0.12%
Term: Monthly rolling (6 cycles)

Execution (Month by month):

Month 1 (Apr): BTC $4,800-$5,200
Days in range: 28/30
Earned: 28 × 0.12% = 3.36% = $6,720

Month 2 (May): BTC $5,200-$5,800
Days in range: 25/31
Earned: 25 × 0.12% = 3.0% = $6,000

Month 3 (Jun): BTC spiked to $7,500
Days in range: 15/30
Earned: 15 × 0.12% = 1.8% = $3,600

Months 4-6: Adjusted range to $5,500-$8,500
Average days in range: 23/30
Average earned: ~$5,520/month

Outcome:

Total earned over 6 months: ~$34,000
Return: 17% in 6 months
Annualized: ~34%

Compare to:
- Bonds (2%): Would have earned $2,000
- Holding BTC: Flat (started $5k, ended $7k = +40%)

Analysis:
Range accruals beat bonds significantly ✅
But underperformed just holding BTC ❌

Lessons:

Range accruals excel in sideways markets - Perfect use case
Must adjust ranges as market shifts - Sarah did this well
Compare to alternatives - Sometimes simple holding wins
Income vs appreciation trade-off - Got income but less capital gain

Capital Protection

Case Study 3: 2020 COVID Crash - Principal Protected Note

Background:

Institution: University endowment fund
Date: January 2020
Capital: $50 million
Mandate: Cannot lose principal (conservative)
Goal: Equity-like returns with protection

Structure: 1-year S&P 500 Principal Protected Note

Components:
- $47.5M in zero-coupon treasuries (maturing at $50M)
- $2.5M in S&P 500 ATM call options
- Participation: ~55%

S&P 500 Level: 3,250 at inception

Timeline:

Jan 2020: PPN issued
Feb 2020: COVID fears emerge, S&P drops 10%
Mar 2020: PANIC - S&P crashes to 2,200 (-32%!)

Without Protection:
$50M × 0.68 = $34M (lost $16M) ❌

With PPN:
Treasury bond: Still worth ~$47.5M
Call options: Worthless
Current value: ~$47.5M (on track for $50M)
Unrealized "loss": ~$2.5M (temporary)

Many peers panic-sold at bottom, locking in 30% losses
PPN holder STAYED CALM ✅

Recovery:

Apr-Dec 2020: Market recovers
Jan 2021: S&P at 3,750 (+15% from start)

Final Payout:
Principal: $50M ✅
Option profit: 15% × 55% = 8.25%
Total: $50M × 1.0825 = $54.125M

Return: 8.25% (vs -32% at worst point)

Outcome:

✅ Protected through crash (psychological benefit)
✅ Participated in recovery (8.25%)
✅ Beat bonds (treasuries paid ~2%)
✅ Met mandate (principal safe)
❌ Underperformed pure equity (+15% vs +8.25%)

But: Avoided career-ending drawdown ✅

Lessons:

PPNs work brilliantly in volatile markets - 2020 was perfect
Behavioral edge - Prevented panic selling
Trade-off is real - Gave up 6.75% upside for protection
Know your mandate - Endowment couldn’t afford -30%
Structural protection > Willpower - Can’t panic sell a PPN

Volatility Trading

Case Study 4: Volatility Crush After Bitcoin ETF Approval

Background:

Trader: Alex, experienced options trader
Date: January 2024
Event: Bitcoin Spot ETF approval expected
Observation: Implied vol elevated (95%) vs historical (70%)

Thesis:

Pre-approval: High uncertainty → High IV (95%)
Post-approval: Certainty returns → IV crashes to 60-65%

Strategy: Sell volatility before event, capture vol crush

Structure: Short iron condor (defined risk)

Bitcoin at $46,000

Sell $42,000 put @ $1,800
Buy $40,000 put @ $600 (protection)
Sell $50,000 call @ $2,200
Buy $52,000 call @ $800 (protection)

Net premium collected: $2,600 per condor
Max risk: $2,000 - $2,600 = loses if move > ±4,000
Position size: 20 condors = $52,000 premium
Max risk: $40,000 (if Bitcoin breaks out)

Execution:

Jan 10: ETF approved! Bitcoin spikes to $49,000

Immediate IV crush:
95% → 62% (-33% IV drop!)

Iron condor components:
$42k put: $1,800 → $400 (captured $1,400)
$50k call: $2,200 → $1,100 (captured $1,100)

Net captured: ~$2,000 per condor
Total: 20 × $2,000 = $40,000 profit

Closed at 77% profit (2 days later)
Could have held for full $52,000 but took profit

Outcome:

Capital at risk: $80,000 (margin + max loss)
Profit: $40,000
Return: 50% in 2 days!
Annualized: >9,000% (meaningless, but fun)

Risk taken:
✅ Defined max loss ($40k)
✅ Event-driven (high confidence)
✅ Multiple strike spread (room for error)

Lessons:

Event-driven vol crush is predictable - Binary events spike IV
Sell before event, not during - IV highest just before
Use defined risk - Iron condor vs naked options
Take profits early - Captured 77% in 2 days, good enough
IV crush can be massive - 95% → 62% in hours

Risks:

If ETF denied: Bitcoin could have crashed, max loss hit
Always size appropriately for worst case

Disasters and Lessons

Case Study 5: The XIV Volatility ETF Implosion (February 2018)

Background:

Product: XIV (Short VIX ETN)
Strategy: Short volatility every day
Date: February 5, 2018
Popularity: Billions in AUM, retail favorite

The Trade:

XIV Strategy:
- Systematically sell VIX futures
- Collect premium from elevated fear
- Works in calm markets (VIX < 20)

2017 Performance:
VIX stayed below 15 all year
XIV returned +187% ✅
Investors piled in: "Free money!"

The Disaster:

Feb 5, 2018, 3:00 PM:
Market drops 4%
VIX: 17 → 37 in HOURS (+117%!)

XIV Holdings:
Short VIX futures exploded in value
Losses exceeded 80% in ONE DAY

9:00 PM: Trading halted
Value: Dropped from $99 to $4 (96% loss!)

Aftermath:

Feb 6: Product terminated (total loss)
Investors lost billions
Class action lawsuits filed

Example:
$100,000 investment → $4,000 (lost $96,000)
In ONE day.

Lessons:

Short volatility has unlimited risk - XIV proved it catastrophically
Leverage magnifies disasters - XIV was leveraged short vol
Works until it doesn’t - 187% return → 96% loss
Tail risk is real - “This will never happen” = famous last words
Don’t bet more than you can afford to lose - Many lost life savings
Read the prospectus - Termination clause was documented
Past performance ≠ Future results - Most painful lesson

What to do instead:

Use defined-risk strategies (iron condors, spreads)
Never sell naked volatility without stops
Size positions for survival of 3-sigma events
Understand worst-case scenarios

Case Study 6: Long-Term Capital Management (LTCM) Collapse (1998)

Background:

Fund: LTCM (Nobel Prize-winning quants)
Strategy: Volatility arbitrage, convergence trades
Leverage: 25:1 (for every $1, control $25)
Assets: $5 billion, Notional: $125+ billion

The Strategy:

LTCM's edge:
- Identify mispriced volatility
- Sell expensive vol, buy cheap vol
- Delta hedge continuously
- Wait for convergence

Worked for 4 years:
1994-1997: +40% annual returns

The Disaster (August-September 1998):

Russian debt default (Aug 17):
Markets panic, flight to quality
Volatility spikes globally

LTCM Positions:
- Short volatility across many markets
- All correlations went to 1 (disaster!)
- Liquidity disappeared

Margin Calls:
Can't close positions (too big)
Can't meet margin (over-leveraged)
Facing total collapse

Fed Intervention:
Organized $3.6B bailout
Controlled liquidation over months
Investors lost 90%

Lessons:

Leverage amplifies everything - 25:1 = instant death in crisis
Models fail in extremes - “4-sigma event” happened
Liquidity risk - Can’t exit when you’re too big
Correlation breaks down - In crashes, everything correlates
Genius doesn’t prevent losses - Nobel laureates still blew up
Risk management > Strategy - Great strategy, terrible risk management

Modern Application:

Keep leverage reasonable (2-5x max for pros, 1x for retail)
Stress test for correlation = 1 scenarios
Maintain liquidity buffer
Size positions you can exit

Summary: Key Lessons Across All Case Studies

What Works

1. Defined Risk

Iron condors vs naked options
Know max loss before trade
Size for survival

2. Event-Driven Trades

Vol crush after events (Case Study 4)
Predictable patterns
High probability setups

3. Capital Protection in Uncertainty

PPNs in 2020 (Case Study 3)
Behavioral edge
Sleep at night

4. Income in Sideways Markets

Range accruals (Case Study 2)
Covered calls carefully
Know when to use

What Fails

1. Unlimited Risk

XIV collapse (Case Study 5)
LTCM leverage (Case Study 6)
Never risk ruin

2. Chasing Past Performance

187% → -96% (XIV)
Mean reversion kills

3. Over-Leverage

LTCM 25:1 = instant death
Margin calls at worst time

4. Ignoring Tail Risk

“This will never happen”
It always happens eventually

5. Fighting Strong Trends

Covered calls in bull market (Case Study 1)
Know market regime

How to Apply These Lessons

Before Every Trade

Ask yourself:

✅ What’s my max loss?
✅ Can I survive that loss?
✅ What’s the worst-case scenario?
✅ Am I overleveraged?
✅ Do I understand all risks?

Position Sizing

Conservative: Risk 1-2% per trade
Moderate: Risk 3-5% per trade
Aggressive: Risk 10% per trade (MAX)

NEVER risk more than 10% on any single trade.

Risk Management Rules

Define max loss before entry
Set stops (mental or hard)
Size for survival of 3-sigma events
Diversify across strategies and time
Keep leverage low (1-3x for retail)
Monitor Greeks continuously
Have an exit plan before entry

Additional Case Studies Available

Income Strategies

Monthly covered call campaigns
Wheel strategy (puts → calls)
Cash-secured put income

Volatility Trading

Gamma scalping examples
Straddle trades around earnings
VIX trading disasters

Capital Protection

Collar strategies for concentrated positions
Protective puts during crashes
Zero-cost hedges

Advanced Strategies

Multi-asset basket trades
Autocallable real-world examples
Dispersion trading

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Last Updated: October 2025 New Case Studies Added: Monthly

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