Smart Options Approach For Bitcoin Traders

Professional traders frequently employ the risk reversal options technique to protect their investments and benefit in the event of a sudden upturn.

Early in January, Bitcoin (BTC) entered an upward channel. Order book experts detected “strong purchasing pressure” and stated that, despite the sideways trade near $40,000, the general bearish attitude may be reaching its limit.

BTC’s price created a bullish hammer candlestick on its daily chart on January 24 and February 24, according to independent expert Johal Miles, suggesting that the longer-term downturn is about to come to an end.

However, as seen by the absence of a China-based peer-to-peer Tether (USDT) premium relative to the official U.S. dollar currency, the advance above $41,000 on February 28 was unable to generate robust demand from Asia-based traders.

Positive news is now arising from eBay’s possible embrace of cryptocurrency. eBay is a major worldwide e-commerce site. The software company is aiming to switch to other payment methods for some of its $85 billion in direct yearly volume that is transacted on the platform, CEO Jamie Iannone said on February 27.

If the European Commission decides to exclude Russia from the global SWIFT cross-border payment network system, bitcoin bulls have a compelling argument for doing the same.

Unintentionally, this highlights Bitcoin’s decentralized advantages as an uncensorable means of commerce and a store of wealth by shutting off Russia from SWIFT and “paralyzing the assets of Russia’s state bank.”

Despite the widespread perception that futures and options are frequently utilized for undue leverage and gambling, the products were initially created for hedging (protection).

Options trading offers investors the chance to profit from rising volatility or get protection from sudden price decreases. These sophisticated investing methods that involve many instruments are referred to as options structures.

The “risk reversal” options method allows traders to protect losses from unforeseen price fluctuations. The investor gains from holding call options but pays for them by selling put options. In essence, this configuration eliminates the danger of the stock moving sideways, but it does carry a large risk if the asset moves downward.

The trade mentioned above only considers options expiring on March 31, but investors can uncover patterns utilizing other maturities as well. At the time of the pricing, the price of one bitcoin was $41,767.

The trader must first purchase protection against a downward movement by purchasing 2 BTC puts (selling $34,000 worth of options contracts). To net the profits over this amount, the trader will then sell 1.8 BTC put (sell) $38,000 contracts of options. Finally, for positive price exposure, the trader might purchase three $52,000 call options contracts.

Leave a Comment

Your email address will not be published.