Despite XRP’s recent slide, the $5 call option is drawing millions in bets on Deribit. However, these aren’t all bullish bets – most are actually covered calls, according to exchange executives. Find out what this really means for XRP’s price outlook and why traders are using this strategy.

XRP may have fallen 30% from its January high of $3.40 to around $2.40 today, but that hasn’t stopped traders from piling into options contracts betting on a rise to $5.

Data from Deribit Metrics shows the $5 call option is currently the most popular strike price for XRP on the exchange, with notional open interest reaching $3.84 million – the highest among all strike prices. On Deribit, each options contract represents one XRP token.

But before you interpret this as a massively bullish signal, there’s an important catch.

“Most of these are covered calls,” revealed Lin Chen, Deribit’s Asia Business Development Head, explaining the significant buildup in open interest for these out-of-the-money calls.

XRP Options: Open Interest By Strike Price (Credit: Deribit)

What Are Covered Calls?

Covered calls represent a popular trading strategy where investors sell call options while simultaneously holding the underlying asset – in this case, XRP. By implementing this approach, traders can earn additional income through the premium received from selling the calls, while protecting themselves against potential losses if prices unexpectedly surge.

The strategy works particularly well in sideways or slightly bearish markets, allowing XRP holders to generate yield while waiting for price action. Rather than representing pure bullish sentiment, these positions often indicate traders are looking to maximize returns on existing holdings.

This technique isn’t unique to XRP – it’s widely used in traditional financial markets and has become increasingly common in Bitcoin and Ethereum trading as crypto options markets mature.

For XRP holders looking at the current price action, covered calls provide a way to potentially boost returns while the asset works through its current correction phase following the January peak.