Historical data shows that it is nearly impossible to consistently predict Bitcoin’s price action and many traders that attempt this end up losing money. Now that Bitcoin trades near $50,000, the ultimate goal for most traders is to hold on to their current holdings and incrementally add to them in a way that is not terribly risky.
Options strategies provide excellent opportunities for traders who have a fixed-range target for an asset. For example, using leveraged futures contracts might be a solution for a scenario where one expects a price increase of up to 28% over the next month. Of course, using a tight stop loss lessens the viability of the trade.
On the other hand, using multiple call (buy) options can create a strategy that allows gains that are four times higher than the potential loss. These can be used in both bullish and bearish circumstances, depending on the investors’ expectations.
The long butterfly strategy allows a trader to profit from the upside while limiting losses. It’s important to remember that options have a set expiry date; therefore, the price increase must happen during the defined period.
The Bitcoin (BTC) calendar options below are for the March 26 expiry, but this strategy can also be used on Ether (ETH) options or a different time frame. Although the costs will vary, its general efficiency should not be affected.
Profit / Loss estimate. Source: Deribit Position Builder
The suggested bullish strategy consists of buying 1 BTC worth $48,000 call options while simultaneously selling double that amount of $56,000 calls. To finalize the trade, one should buy 1 BTC worth of $64,000 call options.
While this call option gives the buyer the right to acquire an asset, the contract seller gets a (potential) negative exposure.
As the estimate above shows, if BTC is trading for $48,700, any outcome between $49,380 (up 1.5%) and $62,630 (up 28.6%) yields a net gain. For example, a 10% price increase to $53,570 results in a $4,000 net gain. Meanwhile, this strategy’s maximum loss is $1,350 if BTC trades below $48,000 or above $64,000 on March 26.
This allure of this butterfly strategy is the trader can secure a $4,050 gain, which is 3x larger than the maximum loss, if BTC trades from $53,550 to $58,460 expiry.
Overall it yields a much better risk-reward from leveraged futures trading considering the limited downside.
The multiple options strategy trade provides a better risk-reward for bullish traders seeking exposure to BTC’s price increase and the only upfront fee required is the $1,350 which reflects the maximum loss if the price is below $48,000 or above $64,000 at the expiry date.
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.
Julia started off her career as a travel blogger, hitchhiking and exploring the world as a nomad. After many years of traveling with little to nothing on her, volunteering, and waiting tables from town to town across Europe and US, she met a crypto trader who opened her eyes to how she can invest and make money with blockchain. Nowadays she is a trader and a blogger, writing about new currencies, NFTs, p2e platforms, and DeFi in general.