BTC price is still fluctuating widely, giving options traders a chance to apply the Iron Condor approach.
Bitcoin (BTC) last traded above $50,000 on December 27, 2021. Four months have passed since then, but traders still appear to be relatively confident that inflation has reached the right level to spark the adoption of cryptocurrencies.
Theoretically, the 8.5 percent inflation rate in the US translates to a 50% increase in costs every five years. By reducing the dollar’s purchase value by 33 percent, this effectively reduces $100 to $66.
On May 4, the U.S. Federal Reserve’s FOMC is anticipated to make decisions about interest rates, but more significantly, the FED is anticipated to disclose a plan to unload a portion of its $9 trillion balance sheet. Consequently, the U.S. has stopped supporting the debt and mortgage markets. These assets are expected to be sold by the central bank for $95 billion each month.
Risk markets have priced in such a possibility since the repercussions might be severe. The Rusell 2000 mid-capitalization stock market index, for instance, has lost 16.5 percent of its value thus far in 2022. Similar to this, the MSCI China index shows that the Chinese stock market has had a 20% correction so far this year.
Although it is impossible to predict what would set off a Bitcoin bull run, a research published on April 18 by Glassnode found that there was a significant buildup in coin supply between $38,000 and $45,000. There is a low-risk options technique that can be utilized to place a long bullish bet for traders who think BTC will hit $50,000 by July.
It normally pays well to follow the whales and big investors, but most traders want to maximize profits while minimizing losses. By keeping losses below $38,000, the skewed “iron condor,” for instance, optimizes earnings close to $50,000 by July.
The buyer of a call option pays an up-front charge known as a premium in exchange for the right to purchase an asset at a defined price in the future.
The put option, on the other hand, gives the buyer the right to sell an asset at a defined price in the future as a kind of downside protection. Selling this instrument, however, exposes investors to potential price increases.
The iron condor involves selling call and put options with the same strike price and expiration date. The BTC July 29 choices were used to set the example above.
The investor must short 1 contract of the $44,000 call option and an additional 1.4 contracts of the $44,000 put option in order to start the transaction. The procedure for the $50,000 options must then be repeated by the buyer using the same expiration month.
3.46 contracts of the $38,000 put option should be purchased in order to hedge against potential downside. Finally, to prevent losses from going beyond the amount, one should purchase 1.3 contracts of the $70,000 call option.
If Bitcoin trades between $40,500, 4 percent above the current $38,900 price, and $60,500 on July 29, then this approach results in a net gain. Between $43,200 and $53,400, net gains continue above 0.21 BTC, reaching a peak of 0.33 BTC.
If the price of bitcoin trades below $38,000 or over $70,000 on July 29, which both seem quite implausible, the maximum loss is 0.21 BTC in each extreme.