Here’s how pro traders could use bitcoin options to take advantage of BTC’s drop to $ 20,000

Here's how pro traders could use bitcoin options to take advantage of BTC's drop to $ 20,000

Bitcoin hit its 2022 low at $ 17,580 on June 18 and many traders expect this to be the bottom, but (BTC) has not been able to close daily above $ 21,000 in the last six days. For this reason, traders are dissatisfied with the current price and the threat from many CeFi and DeFi companies dealing with loss of user funds and potential insolvency is weighing on the mood.

The blowback of the Three Arrows Capital (3AC) venture capital fund, which failed to meet its financial obligations on June 14, and the Asian lending platform Babel Finance, which cited liquidity pressure to protect suspended withdrawals, are just two of the biggest ones. recent examples.

This news caught the attention of regulators, especially after Celsius, a cryptocurrency lending company, suspended user withdrawals on June 12. On June 16, securities regulators in five U.S. states opened investigations into cryptocurrency lending platforms.

There is no way of knowing when a Bitcoin bull run will change sentiment and excite, but for traders who believe that BTC will reach $ 28,000 by August, there is a low – risk options strategy that yields a reasonable return with limited risk.

The “Iron Condor” offers returns for a specific price range

In some cases, it can benefit from launching “Hail Mary” by multiplying the leverage effect by ten through futures contracts. However, most traders are looking for ways to maximize gains and limit losses. For example, the asymmetric “Iron Condor” maximizes profits near $ 28,000 by the end of August, but limits losses if expiration is below $ 22,000.

Returns from Iron Condor Asymmetric Bitcoin Options Strategy. Source: Deribit Position Builder

The call option gives its asset holder the right to receive a fixed price in the future. For this lien, the buyer pays an initial fee called a premium.

At the same time, the option gives its holder the privilege of selling an asset at a fixed price in the future, which is a disadvantage protection strategy. On the other hand, the sale of this instrument provides exposure to the bottom of the price.

The Iron Condor consists of call and put options for sale at the same price and expiration date. The above example was drawn using 26 August contracts, but can be adapted for other periods.

The target profit range is between $ 23,850 and $ 35,250

To initiate the trade, the investor must sell 3.4 contracts of the $ 26,000 call option and 3.5 contracts of the $ 26,000 invited option. He then has to repeat the procedure for the $ 30,000 options, using the same expiration month.

It also has to buy 7.9 contracts of the $ 23,000 option sent to protect against potential disadvantage. Another purchase of 3.3 contracts of the option calls $ 38,000 to limit losses above the level.

This strategy allows for a net gain if bitcoin is trading between $ 23,850 and $ 35,250 on August 26th. Net profit at 0.63 BTC ($ 13,230 at current price) is between $ 26,000 and $ 30,000, but remains above 0.28 BTC ($ 5,880 at current price) if bitcoin trades in the $ 24,750 and $ 32,700 range.

The investment required to open this strategy is the maximum loss, so 0.28 BTC or $ 5,880, which will occur if bitcoin trades below $ 23,000 or above $ 38,000 on August 26th. The advantage of this trade is that it covers a reasonable target range, offering a 125% return against the expected loss.

The views and opinions expressed herein are those of theauthor and those do not necessarily represent Cointelegraph. All investments and trades involve risk. You should do your own research before making a decision.

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