Bitcoin (BTC) price fluctuations may be impossible to predict, but there is a strategy commonly used by professional traders that yields high returns at minimal cost.
Typically, retail traders rely on leveraged futures positions, which are highly vulnerable to forced liquidations. However, Bitcoin options trading offers excellent opportunities for investors who aim to maximize their profits while limiting their losses.
By using multiple call (buy) options, a strategy can be created that yields returns that are six times greater than the potential loss. Furthermore, these can be used in bullish and bearish situations depending on investors’ expectations.
Regulatory uncertainty surrounding cryptocurrencies has long been a significant setback for investors, and this is another reason why neutral market strategies have attracted traders’ attention since Bitcoin’s rally stagnated at $47,000 on March 30.
How to profit in a sideways market
The long butterfly strategy allows a trader to profit even if the price of bitcoin remains flat. However, it is important to remember that options have a set expiration date. This means that the desired price outcome must occur during a specific period of time.
Bitcoin options have been set to expire on April 29, but this strategy can also be used for Ether (ETH) options or any other time frame. At the time of writing, Bitcoin is trading at $47,370 and while costs will vary, their overall efficiency should not be affected.
The suggested bullish strategy is to buy 7.3 BTC call (buy) options with a strike price of $46,000 to take advantage of a price increase. Meanwhile, selling 16 BTC call (buy) options at 50k creates negative exposure above this level.
The trader should buy 4.8 BTC worth $52,000 and 3.9 BTC worth $55,000 call options to offset the risk above that price.
The winnings can be four times higher than the potential loss
As the estimate above shows, any outcome between $46,700 (down 1.5%) and $53,500 (up 12.9%) results in a net profit. The best possible outcome occurs at $50,000 and results in a net gain of 0.47 BTC. Meanwhile, the maximum loss of this strategy is 0.11 BTC if the price trades below $46,000 or above $55,000 on April 29.
The appeal of this butterfly strategy is that the trader can achieve profits that are 6 times greater than the maximum loss. Overall, it gives a much better risk/reward ratio than leveraged futures trading, considering the limited downsides.
This option trading strategy offers upside potential even if the price of bitcoin remains flat and the only upfront fee required is 0.11 BTC, which also reflects the maximum loss.
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.
https://cointelegraph.com/news/here-s-how-pro-traders-use-bitcoin-options-to-profit-even-during-a-sideways-market This is how professional traders use Bitcoin options to profit even during a sideways market