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

Bitcoin (BTC), which entered an upward channel in January, saw sideways trading close to $40,000 and order book analysts noted “significant buying pressure” and suggested that overall negative sentiment could be headed towards exhaustion.

Price of Bitcoin/USD at FTX Source: TradingView

Johal Miles, an independent analyst, noted that BTC’s daily chart showed a bullish candlestick (bullish hammer) on January 24 and February 24, suggesting that the long-term downtrend may be coming to an end.

The rally above $41,000 on February 28 failed to generate strong demand from Asia-based traders. This was illustrated by the absence of a China-based peer–to–peer Tether premium (USDT), compared to the official U.S. currency.

Positive news is currently coming out of the possible adoption by eBay of crypto. Jamie Iannone, CEO of the tech giant, revealed on February 27 that it is considering switching to new payment methods for a portion of the $85 billion annual volume that is transacted through the platform.

Bitcoin bulls have strong arguments to allow for upside price surprises in the event that the European Commission decides to isolate Russia from the SWIFT cross-border payments network system.

The European Commission will also “paralyze Russia’s central banks assets” and cut Russia off from SWIFT. This, whether or not it was intended, highlights Bitcoin’s decentralization advantages as an uncensorable medium of exchange and a store-of-value.

The current scenario calls for a risk reversal strategy

Despite the common belief that options and futures are often used for gambling or excessive leverage, these instruments were actually created for protection (hedge).

Options trading offers investors the opportunity to profit from volatility and protect themselves from price drops. These complex investment strategies, which involve more than one instrument, are called options structures.

To hedge against losses due to unexpected price swings, traders can use the “risk reverse” options strategy. An investor gains by being long on call options but must sell the put to pay for them. This setup reduces the risk of stock trading sideways, but it does carry significant risk if the asset trades lower.

Estimate profit and loss. Source: Deribit Position Builder

The trade above focuses only on Mar. There are 31 options available, but investors can find similar patterns with different maturities. Bitcoin traded at $41,767 at the time of pricing.

The trader must first buy protection against a down move by purchasing 2 BTC put (sell) $34,000 options contract. To increase the returns, the trader will then sell 1.8 BTC puts (sell) 38,000 options contracts. For positive price exposure, buy 3 call (buy), $52,000 options contracts.

Protected from a drop in price to $38,000, investors

This options structure does not result in a gain or loss of between $38,000 (down 9.9%) and $52,000 (24.5%). The investor bets that Bitcoin’s price will rise on March. 31 at 8:00 UTC will rise above this range, while the investor can earn unlimited profits and a maximum loss of 0.214 BTC.

This investment would yield a gain of 0.214 BTC if Bitcoin prices rise to $56,000 (up 34%). This options structure is free, but the exchange will need a margin deposit in order to cover any losses.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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