Why Bitcoin's Cash and Carry Arbitrage Strategy Is Losing Ground to Option Selling

The cryptocurrency market is witnessing a strategic shift as traders move away from traditional spot-futures arbitrage strategies in favor of option-based yield generation. As the cash and carry arbitrage model loses its economic appeal, selling out-of-the-money bitcoin call options has regained traction among traders seeking alternative income sources. This transition reflects broader changes in market dynamics and the compression of arbitrage returns.

Bitcoin is currently trading near $68.26K as of late February 2026, up 4.43% over 24 hours. The renewed interest in option selling strategies highlights how market conditions have fundamentally altered the profitability landscape for traditional arbitrage approaches that dominated conversations in 2022 and early 2023.

The Resurgence of Call Option Selling

Selling call options—essentially writing contracts that provide insurance to buyers against bullish price movements in exchange for premium payments—has emerged as a preferred yield strategy as market conditions shift. Traders are currently marketing $80,000 strike call options expiring in late May, according to algorithmic trading firm Wintermute, positioning these contracts well above current price levels to capture premium income while limiting downside risk.

“One popular strategy among traders is to sell out-of-the-money call options at higher strike prices, like the $80,000 mark set for the end of May. These strikes are beyond the current high range and are less likely to be exercised, allowing traders to collect premiums while reducing their risk exposure,” Wintermute explained in recent market analysis.

The mechanics are straightforward: if bitcoin closes below the strike price at expiration, option sellers retain the full premium. However, sellers face losses if prices surge above $80,000 without hedging or offsetting long positions in the spot market. This risk-reward calculation has proven attractive enough to draw renewed participation in option markets.

Why Cash and Carry Arbitrage Is No Longer as Attractive

The traditional spot-futures arbitrage model, where traders simultaneously buy spot assets and sell futures contracts to capture pricing discrepancies, has lost much of its appeal. The cash and carry arbitrage strategy once generated substantial returns by exploiting the premium futures commanded over spot prices—a phenomenon known as the “basis.”

Historical data from early 2024 tells the story clearly. Three-month bitcoin futures contracts listed on major platforms commanded an annualized premium of 28% at the end of March. Today, that same premium has compressed to approximately 5%, making the strategy significantly less attractive than risk-free alternatives. The 10-year U.S. Treasury note currently yields around 4.61%, making traditional cash and carry arbitrage—now offering minimal returns—less compelling than lower-risk government debt.

Singapore-based trading desk QCP Capital observed heavy option selling activity during recent weeks, directly attributing the shift to drying arbitrage returns. “This is the result of spot price being stuck in a tight range and the basis yields drying up. The desk has seen many customers pivot back to option selling strategies,” QCP Capital stated in recent market commentary.

Futures Premium Collapse Signals Shift in Trader Preferences

Technical indicators underscore the fundamental market transition underway. Deribit’s Volatility Index (DVOL), which tracks implied volatility across bitcoin options for the next 30 days, has experienced a sharp decline. The index fell from an annualized 72% to 59% within just 10 days, according to TradingView data, signaling intensified option selling activity.

The ethereum market exhibits similar patterns, with ETH’s DVOL declining from 80% to 60% last week before bouncing back to nearly 80% this week—suggesting volatile demand shifts among option participants. Ethereum has posted a 7.80% gain over the same 24-hour period, adding to market momentum.

Implied volatility indices typically fall when option sellers increase activity, as their willingness to provide insurance (sell options) reflects confidence in relatively stable price ranges. The collapse in DVOL reflects traders’ collective assessment that significant price swings are unlikely—a perfectly rational assumption for option sellers targeting strikes 20-30% above current levels.

Market Context Behind the Strategy Shift

Bitcoin’s price action has reinforced the appeal of option selling strategies. The cryptocurrency fell as low as $56,600 on a recent trading day before climbing back toward current levels, having recently broken out of a four-week consolidation band between $60,000 and $70,000. Multiple factors contributed to this volatility, including declining demand for spot bitcoin exchange-traded funds and a strengthening U.S. dollar index.

The shift from spot-futures arbitrage to option selling isn’t simply driven by yield hunger—it reflects market maturity. When easy arbitrage opportunities exist, traders exploit them until they compress to negligible levels. The futures premium collapse represents exactly this phenomenon. As those opportunities dried up, sophisticated market participants have reallocated capital toward different risk-adjusted return profiles.

The $68.26K bitcoin price level observed in late February 2026 remains well below previous cycle highs, suggesting continued room for further appreciation. For option sellers targeting $80,000 strikes on May expiration dates, the strategy offers a calculated risk where substantial price appreciation would be required to trigger losses.

The Broader Implications

This market evolution underscores how cryptocurrency trading strategies must adapt as conditions change. The cash and carry arbitrage model proved extraordinarily profitable during certain market phases, particularly when futures premiums remained elevated. However, its economics have become increasingly unattainable in compressed market structures.

Option selling strategies, by contrast, function effectively across different market regimes. Their profitability depends on realized volatility remaining lower than implied volatility—a bet on relative price stability rather than on exploiting temporary pricing discrepancies. In choppy but range-bound markets, this represents a more stable income source than traditional arbitrage.

As traders continue navigating evolving market conditions, expect further evolution in popular strategies. The pendulum has clearly swung from spot-futures arbitrage toward option-based income generation, reflecting the current reality that cash and carry opportunities simply cannot compete with other available returns.