Although Bitcoin (BTC), price swings can be difficult to predict, there is an approach that pro traders use frequently to generate high returns at minimal cost.
Retail traders tend to rely on leveraged options positions that are susceptible to forced liquidations. Trading Bitcoin options offers investors great opportunities to maximize their gains and minimize their losses.
Multiple call (buy) options can result in strategy returns that are six times greater than the risk of losing. These options can be used in both bullish or bearish situations depending on investors’ expectations.
Investors have long found regulatory uncertainty around cryptocurrency a major setback. This is why traders are now interested in neutral market strategies since Bitcoin’s March 30 rally that stagnated at $47,000.
How to make money in a sideways marketplace
A trader can profit even if Bitcoin’s value remains flat by using the long butterfly strategy. It is important to keep in mind that all options have an expiry date. This means that the desired price result must occur within a specific time period.
Although the April 29 expiry date was set for Bitcoin, this strategy can be used in Ether (ETH), or any other time period. Bitcoin traded at $47,370 at the time of writing. Although the costs may vary, they should not affect their overall efficiency.
Profit / Loss estimate. Source: Deribit Position Builder
To benefit from an increase in price, the suggested bullish strategy is to buy 7.3 BTC call options (buy) with a $46,000 strike. Selling 16 BTC call options (buy) at 50,000 creates negative exposure above this level.
Traders should purchase 4.8 BTC worth $52,000 in call options, and 3.9 BTC at $55,000 to balance out the risk.
You can make four times more money than you lose.
The estimate shows that any outcome between $46,700 and $53,500 (down 1.5%) yields a net profit. A $50,000 outcome yields a net gain of 0.47 BTC, which is the best possible. This strategy can lose 0.11 BTC if it trades below $46,000 on April 29 or above $55,000 on April 29.
This butterfly strategy has six times the potential for maximum gains. It offers a better risk-reward ratio than leveraged futures trading due to the small downside.
Options strategy trades offer upside, even if Bitcoin’s prices remain flat. The only upfront fee is 0.11 BTC. This also reflects the maximum loss.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.