Warning: unlink(/tmp/jnewslibrary-7I8686.tmp): No such file or directory in /home/customer/www/coinparative.com/public_html/wp-admin/includes/class-wp-filesystem-ftpext.php on line 142
Here’s a clever options strategy for cautiously optimistic Bitcoin traders | Coinparative
Coinparative

  • News
    • Crypto News
    • Blockchain News
    • Altcoin News
    • Press Release
    • NFT News
    • Metaverse
    • Web3.0 News
    • Trending
  • Insights
    • Explainer
    • Research
  • Guides
  • Market
    • Market analysis
    • Market News
    • Reviews
    • Price Index
  • Videos 🚀
No Result
View All Result
  • About Us
  • Contact
  • jeet-detector-bot
    JDB(JDB)
    $0.00-0.61%
  • bitcoin
    Bitcoin(BTC)
    $0.00-2.65%
  • ethereum
    Ethereum(ETH)
    $0.00-2.79%
  • usdex-stablecoin
    USDEX(USDEX)
    $0.00-0.53%
  • tether
    Tether(USDT)
    $0.000.00%
  • binancecoin
    BNB(BNB)
    $0.00-3.03%
  • usd-coin
    USD Coin(USDC)
    $0.000.090%
  • ripple
    XRP(XRP)
    $0.00-2.26%
  • binance-usd
    Binance USD(BUSD)
    $0.00-0.06%
  • cardano
    Cardano(ADA)
    $0.00-3.08%
  • dogecoin
    Dogecoin(DOGE)
    $0.00-4.43%
  • matic-network
    Polygon(MATIC)
    $0.00-0.83%
  • okb
    OKB(OKB)
    $0.00-6.09%
  • solana
    Solana(SOL)
    $0.00-4.21%
  • staked-ether
    Lido Staked Ether(STETH)
    $0.00-2.94%
  • polkadot
    Polkadot(DOT)
    $0.00-3.32%
  • shiba-inu
    Shiba Inu(SHIB)
    $0.00-6.44%
  • litecoin
    Litecoin(LTC)
    $0.00-4.64%
  • avalanche-2
    Avalanche(AVAX)
    $0.00-4.99%
  • tron
    TRON(TRX)
    $0.00-1.19%
View All
Coinparative
Home Guides

Here’s a clever options strategy for cautiously optimistic Bitcoin traders

March 21, 2022
in Guides
245 7
A A
0
Here’s a clever options strategy for cautiously optimistic Bitcoin traders
Share on FacebookShare on Twitter

Bitcoin (BTC) entered an upward channel in early January and despite the sideways trading near $40,000, order book analysts cited “significant buying pressure” and noted that the overall negative sentiment might be heading towards exhaustion.

Bitcoin/USD price at FTX. Source: TradingView

Independent analyst Johal Miles noted that BTC’s price formed a bullish hammer candlestick on its daily chart on Jan. 24 and Feb. 24, hinting that the longer-term downtrend is close to an end.

However, the rally above $41,000 on Feb. 28 was unable to create strong demand from Asia-based traders, as depicted by the lack of a China-based peer-to-peer Tether (USDT) premium versus the official U.S. dollar currency.

Currently, there is positive news coming from the potential adoption of crypto by global e-commerce marketplace eBay. On Feb. 27, CEO Jamie Iannone revealed that the tech giant is looking to transition to new payment modes for part of its $85 billion in direct annual volume that is transacted on the platform.

Bitcoin bulls also have a strong case to leave room for upside price surprises if the European Commission plans to isolate Russia from the international SWIFT cross-border payment network system.

In addition to cutting off Russia from SWIFT, the European Commission will “paralyze the assets of Russia’s central bank.” Whether or not intended, this showcases Bitcoin’s decentralization benefits as an uncensorable means of exchange and a store of value.

The risk reversal strategy fits the current scenario

Albeit the popular belief that futures and options are widely used for gambling and excessive leverage, the instruments were actually designed for hedge (protection).

Options trading presents opportunities for investors to profit from increased volatility or obtain protection from sharp price drops, and these complex investment strategies, involving more than one instrument, are known as options structures.

Traders can use the “risk reversal” options strategy to hedge losses from unexpected price swings. The investor benefits from being long on the call options, but pays for those by selling the put. Basically, this setup eliminates the risk of the stock trading sideways but does come with substantial risk if the asset trades down.

Profit and loss estimate. Source: Deribit Position Builder

The above trade focuses exclusively on Mar. 31 options, but investors will find similar patterns using different maturities. Bitcoin was trading at $41,767 when the pricing took place.

First, the trader needs to buy protection from a downside move by buying 2 BTC puts (sell) $34,000 options contracts. Then, the trader will sell 1.8 BTC put (sell) $38,000 options contracts to net the returns above this level. Finally, the trader could buyi 3 call (buy) $52,000 options contracts for positive price exposure.

Investors are protected from a price drop to $38,000

That options structure results in neither a gain or a loss between $38,000 (down 9%) and $52,000 (up 24.5%). Thus, the investor is betting that Bitcoin’s price on Mar. 31 at 8:00 am UTC will be above that range while gaining exposure to unlimited profits and a maximum 0.214 BTC loss.

If Bitcoin price rallies toward $56,000 (up 34%), this investment would result in a 0.214 BTC gain. Even though there is no cost associated with this options structure, the exchange will require a margin deposit to cover potential losses.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.



Source: Coin Telegraph

Share196Tweet123Share34Pin44ShareSend

Related Articles

What are phygital NFTs, and how do they work?
Guides

What are phygital NFTs, and how do they work?

February 7, 2023
1.4k
What are decentralized social networks?
Guides

What are decentralized social networks?

February 6, 2023
1.4k
How to protect against crime in the metaverse
Guides

How to protect against crime in the metaverse

February 4, 2023
1.4k
What is Lido (LDO): A beginner’s guide to liquidity for staked assets
Guides

What is Lido (LDO): A beginner’s guide to liquidity for staked assets

February 3, 2023
1.4k
What are hierarchical deterministic (HD) crypto wallets?
Guides

What are hierarchical deterministic (HD) crypto wallets?

January 19, 2023
1.4k
What are perpetual futures contracts in cryptocurrency?
Guides

What are perpetual futures contracts in cryptocurrency?

January 18, 2023
1.4k
Load More

Discussion about this post

Coinparative

2022 © All Rights Reserved.

Coinparative specializes in the digital News and research on cryptocurrency, Digital Assets and Blockchain

  • Advertise
  • Privacy Policy
  • Terms
  • About Us
  • Contact

Follow Us

No Result
View All Result
  • News
    • Crypto News
    • Blockchain News
    • Altcoin News
    • Press Release
    • NFT News
    • Metaverse
    • Web3.0 News
    • Trending
  • Insights
    • Explainer
    • Research
  • Guides
  • Market
    • Market analysis
    • Market News
    • Reviews
    • Price Index
  • Videos 🚀

2022 © All Rights Reserved.

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms below to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
DON’T MISS OUT!
Subscribe To Newsletter
Be the first to get latest updates and exclusive content straight to your email inbox.
Stay Updated
Give it a try, you can unsubscribe anytime.
close-link
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.

Warning: unlink(/tmp/jnewsfirstload-jN6TLd.tmp): No such file or directory in /home/customer/www/coinparative.com/public_html/wp-admin/includes/class-wp-filesystem-ftpext.php on line 142