How Professional Ethereum Traders Bet ETH Price Rising While Limiting Losses

Bullish on Ether (ETH) over the past four months has been unsuccessful as its price is down 44% from $4,600. The growth of decentralized finance (DeFi) applications has driven the rally to fade away, in part due to network congestion and average transactions. fee $30 or more.

The pause can also be attributed to excessive expectations because fee mechanism implemented in August 2021 with a hard fork in London. After a drastic reduction in daily net issuance, investors have come to the conclusion that Ether will become “supersonic money”.

Unfortunately, history shows that “hard money” requires decades of credible monetary policy. The Euro, for example, went public in 2002 despite negative issuance periods in 2014 and 2019. However, the currency’s purchasing power was not strong enough against hard assets such as gold or real estate.

Case-Shiller US/EUR Home Price Index (orange, left) & Gold/EUR (blue). Source: TradingView

Due to the underperformance that lasted for 4 months, one could buy some extremely bullish $4,000 ETH calling options for May for $68. However, with 75 days left to expiration, a 55% increase from the current $2,570 is very low.

It seems more prudent to bet on a positive price change, but choose your target range more. That’s exactly how professional traders use the “iron” options strategy.

Reduce losses by limiting the uptrend

total 10.2 million ETH staked into the Eth2 deposit contract (consensus layer) and investors seem confident about the proof-of-stake migration. Furthermore, mitigating the biggest hurdle of the Ethereum network, i.e. scaling, can certainly cause the price of ETH to skyrocket.

Looking for a profit maximization strategy up to $3,600 on May 27 seems prudent. On the other hand, hedging for a negative 7% performance is also wise considering the uncertainty regarding US President Joe Biden crypto management efforts.

While the executive order signed on March 9 did not announce any restrictive measures, it certainly laid the groundwork for a more focused federal oversight.

In that sense, the “Iron Condor” skew options strategy is perfectly suited to such a slightly bullish scenario.

Ether Iron option condor profit bias strategy. Source: Deribit Position Builder

“Iron Condor” sells both call (buy) and put (down) options at the same price and expiration date. The example above was placed using ETH options May 27 at Deribit.

ETH profit zone is from $2,600 to $3,800

Investors should start trading by shorting (selling) 2 contracts of $3,000 put and call options. The trader then needs to repeat the process for $3,200 options.

To protect from extreme price movements, protection at $2,400 was used. Therefore, 5.20 contracts will be needed depending on the price.

Finally, in the event that the price of Ether exceeds $4,000, the buyer will need to acquire a 2.10 call option contract to limit the strategy’s potential loss.

The number of contracts in the example above aims for a maximum gain of 0.63 ETH and a potential 0.40 ETH loss. This strategy yields a net profit if Ether trades between $2,600 and $3,820 on May 27.

Using a misleading version of Iron Condor, an investor can profit as long as the price increase of Ether is less than 49% at expiration.

The views and opinions expressed here are solely those of 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.