Afraid to buy the dip? Bitcoin options offer a safer way to go long from $38,000

The last time Bitcoin (BTC) traded above $50,000 was December 27, 2021. It has been four months since then, but traders seem somewhat optimistic that inflation has reached the necessary threshold to sustain cryptocurrency adoption trigger.

In theory, 8.5% inflation in the United States means that prices are increasing by 50% every five years. This essentially turns $100 into $66 by cutting off 33% of the dollar’s purchasing power.

The Federal Reserve’s FOMC meeting is expected to decide interest rates on May 4, but more importantly, the Fed is expected to announce a program to relieve some of its $9 trillion balance sheet. So instead of supporting the debt and mortgage markets, the US Federal Reserve is likely to sell $95 billion worth of these assets each month.

The consequences could be severe and risk markets have priced in such a scenario. For example, the Rusell 2000 mid-cap stock market index is down 16.5% year-to-date in 2022. Similarly, the Chinese stock market, as measured by the MSCI China Index, is currently facing a 20% year-to-date correction.

There is no way of knowing what will trigger a Bitcoin bull run, but a report from Glassnode on Jan. 18. For traders who believe BTC will hit $50,000 by July, there is a low-risk options strategy that can be used to to place a long bullish bet.

The crooked “Iron Condor” has a limited disadvantage

Following the whales and big investors usually pays off, but most traders look for ways to maximize profits while limiting losses. For example, the crooked “Iron Condor” maximizes gains to nearly $50,000 by July by capping losses below $38,000.

The purchase option gives the buyer the right to purchase an asset in the future at a fixed price, and the buyer pays an upfront fee known as a premium for this privilege.

On the other hand, the put option offers its buyer the privilege of selling an asset at a fixed price in the future – a downside protection strategy. Meanwhile, selling this instrument offers exposure to the upside.

The iron condor is to sell both the call and put options at the same expiry price and date. The example above was set using BTC options as of July 29th.

The winning range is from $40,500 to $60,500

To initiate the trade, the investor must short 1 contract of the $44,000 call option and another 1.4 contracts of the $44,000 put option. Then the buyer must repeat the process for the $50,000 options using the same expiry month.

To protect against an eventual downtrend, one should buy 3.46 contracts of the $38,000 put option. Finally, one should buy 1.3 contracts of the $70,000 call option to limit losses above the level.

This strategy yields a net profit when Bitcoin trades between $40,500, 4% above the current price of $38,900, and $60,500 on July 29th. Net profit peaks at 0.33 BTC at $50,000 but remains between $43,200 and $53,400 above 0.21 BTC.

Meanwhile, if Bitcoin price trades below $38,000 or above $70,000 on July 29, the maximum loss is 0.21 BTC at either extreme, both of which seem rather unlikely.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.