Historical data shows that it is almost impossible to consistently predict Bitcoin price action and many traders who attempt this end up losing a lot of money. Now that Bitcoin is trading close to $ 50,000, the ultimate goal for most traders is to keep their current holdings and gradually increase them in a way that is not very risky.
Option strategies provide excellent opportunities for traders who have a fixed range target for an asset. For example, the use of leveraged futures contracts could be a solution for a scenario where a price increase of up to 28% is expected over the next month. Of course, using a tight stop loss reduces the viability of the trade.
On the other hand, The use of multiple call options can create a strategy that allows profits four times greater than the potential loss. These can be used in both bullish and bearish circumstances, depending on the expectations of each investor.
The bought butterfly strategy allows a trader to benefit from the rise in price while limiting losses. It is important to remember that the options have an expiration date already established; therefore, the price increase must occur during that defined period.
Options Bitcoin (BTC) The fixed dates shown below are for the expiration of March 26, but this strategy can also be used on Ether (ETH) options or a different time frame. Although costs will vary, your overall efficiency should not be affected.
Suggested bullish strategy consists of to buy 1 BTC worth USD 48,000 in call options and at the same time sell double that amount in call options of USD 56,000. To complete the operation, you must buy 1 BTC worth USD 64,000 in call options.
While this call option gives the buyer the right to acquire an asset, the seller of the contract gets negative exposure (potentially).
As the estimate above shows, If BTC is trading for $ 48,700, any result between $ 49,380 (up 1.5%) and $ 62,630 (up 28.6%) will produce a net profit. For example, a 10% price increase to $ 53,570 results in a net profit of $ 4,000. Meanwhile, the maximum loss for this strategy is $ 1,350 if BTC is trading below $ 48,000 or above $ 64,000 on March 26.
This attraction of this butterfly strategy is that eThe trader can secure a profit of USD 4,050, which is 3 times greater than the maximum loss, if BTC is trading between $ 53,550 and $ 58,460 by the expiration date.
Overall, it offers a much better risk reward than trading leveraged futures considering the downside possibility.
Multi-option trading provides a better risk reward for bullish traders seeking exposure to BTC’s price surge and the only required initial fee is $ 1,350, which reflects the maximum loss if the price is less than USD. 48,000 or more than USD 64,000 on the expiration date.
The views and opinions expressed here are solely those of the carr and do not necessarily reflect the views of Cointelegraph. Every investment and business move involves risks, you must do your own research when making a decision.