With Bitcoin up more than 300% in just five months, many traders are eager to get a piece of the action by taking positions on the world’s most popular cryptocurrency. But how can you profit from this highly volatile asset? One option is to use options: an increasingly popular tool for hedging your bets without having to actually own bitcoin and trade it yourself.
The “bitcoin straddle” is a strategy that allows traders to profit while also hedging their bets. The strategy is simple and has many benefits.
The “long condor with call options” delivers ideal profits with extremely minimal risk for traders who are unsure about Bitcoin’s (BTC) trend. This method provides protection down to $53,500, which is a 7% drop from the current $57,600, and gives a positive result up to $67,500.
Options markets provide you greater freedom to create your own tactics. Unlike futures, there are two different instruments to choose from. The call option protects the buyer against price increases on the upside, whilst the protective put option protects the buyer from price decreases on the downside.
The Bitcoin options approach has paid well. Deribit Position Builder is the source of this information.
This long condor approach has a slightly positive range and is due to expire on December 31. Other times or price ranges may be used with the same basic structure, however contract numbers may need to be adjusted.
When the pricing took place, Bitcoin was trading at $57,600, but a comparable outcome may be reached beginning at any price level. The minimum contract size varies every derivatives exchange, however the specified ratio must be maintained to maintain the overall strategy structure.
To build positive exposure above this price level, the initial strategy entails purchasing 0.54 contracts of $52,000 call options. The trader must next sell 0.50 BTC call option contracts to restrict profits over $56,000.
Another 0.45 call option contract should be sold to further restrict profits beyond $64,000. To execute the strategy, the trader will need to purchase 0.41 call option contracts if the Bitcoin price rises over $70,000.
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The risk-reward ratio of 1.50 to 1 is moderately optimistic.
The technique may seem difficult to implement, however the necessary margin is just 0.0152 BTC, which is also the maximum loss. Traders should keep in mind that if there is adequate liquidity, they may terminate the trade before the December 31 expiration date.
At 0.0233 BTC, the maximum net gain is between $56,000 and $64,000, which is 50% greater than the maximum loss. With 30 days before the expiration date, this approach provides peace of mind to the holder since, unlike futures trading, there is no chance of liquidation.
Furthermore, a profit range ranging from a 7% price change to a positive 17% price change is prudent and covers a reasonable $14,000 price range.
The author’s thoughts and opinions are purely his or her own and do not necessarily represent those of Cointelegraph. Every investing and trading decision has some level of risk. When making a choice, you should do your own research.
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The “bitcoin option premium” is a strategy that uses options to profit while also hedging your bets. The idea behind the strategy is to buy put options when Bitcoin prices are high and sell call options when Bitcoin prices are low.
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