crypto strategy

This Simple Bitcoin Options Strategy Allows Traders to Go Long with Limited Downside Risk

bitcoin (BTC) bulls were hoping that the November 21 low to $15,500 would mark the bottom of the cycle, but BTC has been unable to produce a daily close above $17,600 for the past eighteen days.

Traders are clearly uncomfortable with the current price action and the Confirmation of BlockFi’s demise on November 28 was not helpful for a possible rally in Bitcoin price. The cryptocurrency lending platform filed for Chapter 11 bankruptcy in the United States weeks after the company halted withdrawals.

In a statement sent to Cointelegraph, Ripple’s head of APAC policy, Rahul Advani, said he expected the failure of the FTX exchange to lead to a closer look at crypto regulations“Following the event, several global regulators pledged to focus on developing greater crypto regulation.

Unfortunately, there is no way of knowing when investor sentiment will improve and trigger a new bull run. Despite this, for traders who think BTC will hit $20,000 by December 30, there is a low-risk options strategy that could yield a decent return with limited risk.

How Professional Traders Use the Bullish Iron Condor Strategy

Purchase Bitcoin Futures pays off during bull markets, but the problem lies in managing liquidations when the price of BTC drops. This is why professional traders use options strategies to maximize their gains and limit their losses.

Iron Condor’s bullish strategy can maximize profits near $21,000 by the end of 2022 and it limits losses if the expiry price is below $18,000. It should be noted that Bitcoin was trading at $16,168 when the price of this pattern occurred.

Iron Condor’s Bitcoin Options distorted the strategy’s returns. Source: Derisory Position Generator

The call option gives its holder the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee called premium.

Meanwhile, the put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling this instrument (put) provides exposure to rising prices.

The Iron Condor consists of selling call and put options at the same price and at the same expiration date. The example above was set using December 30 contracts, but it can be adapted for other timeframes.

As shown above, the target profit zone is $18,350 to $24,000. To initiate the trade, the investor must sell short 2 contracts of the $20,000 call option and two contracts of the $20,000 put option. Then the buyer must repeat the procedure for the $22,000 options, using the same expiry month.

Buying 5.8 contracts of the $18,000 put option to protect against a possible downside is also necessary. Finally, buy 5.3 contracts of the $24,000 call option to limit losses above the level.

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This strategy generates a net gain if Bitcoin trades between $18,350 and $24,000 on December 30. Net profits peak at 0.485 BTC ($7,860 at current prices) between $20,000 and $22,000, but remain above 0.10 BTC ($1,620 at current prices) if Bitcoin trades. between $18,350 and $23,600.

The investment required to open this Iron Condor strategy is the maximum loss, so 0.103 BTC or $1,670, which will happen if Bitcoin trades below $18,000 on December 30. The advantage of this trade is that a wide target area is covered while providing a 475% return against the potential loss.