Bitcoin (BTC) entered an ascending channel in mid-September and continued sideways activity near $19,500. Given the bullish nature of the technical formation and reduced selling pressure from struggling miners, analysts expect prices to rise in the coming months.
Independent analyst @el_crypto_prof noted that BTC price has formed a “1-2-3 reversal pattern” on a daily time frame, suggesting that $20,000 could be a support soon.
Yes, price action $BTC it’s really boring, isn’t it?
But if you look closely, a textbook “1-2-3 Reversal-Pattern” has been made in the last few days, Bitcoin should finally be sent above 20k soon. pic.twitter.com/29Wa64XKQa
— ⓗ (@el_crypto_prof) October 20, 2022
BTC$# Bitcoin. Yes, the price of $BTC is really boring, isn’t it? But if you look closely, a 1-2-3 reversal pattern has formed over the past few days, which should send bitcoin above $20,000 soon. pic.twitter.com/29Wa64XKQa — ⓗ (@el_crypto_prof) October 20, 2022
Fundamental analysts also attribute this sideways move to struggling bitcoin mining companies. For example, Solid Digital Mining announced a debt restructuring on August 16, which included the return of 26,000 miners.
A listed miner, Core Scientific, sold 12,000 BTC between May and July, and listed mining companies sold 200% of their bitcoin production. Bitcoin enthusiast @StoneysGhoster says the hard sell was caused by excessive leverage, not the mining activity itself.
Bitcoin is grinding sideways around 20k because public miners are in trouble and have to sell all their bitcoins.
Turns out that was taking out a bunch of debt.
— StoneysGhost (@StoneysGhoster) October 8, 2022
Bitcoin is trending sideways around $20,000 as listed miners are struggling and need to sell all their bitcoins. Turns out taking on a lot of debt is a bad idea. — StoneysGhost (@StoneysGhoster) October 8, 2022
Regardless of the bottom line scenario for a bitcoin price recovery above $20,000, investors fear the impact of a stock market crash as central banks continue to raise interest rates to reduce inflation.
Given the continued uncertainty caused by macro factors, a strategy that allows for gains in the $21,000-$28,000 range while limiting losses below $19,000 is prudent. In this sense, options markets offer more flexibility to develop personalized strategies.
It starts with selling options for upside exposure
To maximize returns, investors could consider the slightly biased Iron Condor options strategy for a bullish return. While a put option gives its buyer the privilege of selling an asset at a fixed price in the future, selling this instrument provides exposure to rising prices.
The example above was set using November 25 BTC options at Deribit. To initiate the transaction, the buyer must sell 1 call contract and enter $23,000 in options. Then the buyer must repeat the procedure for the $25,000 options.
To protect against extreme price movements, a put option was used at $19,000. Therefore, 2.6 contracts will be required, depending on the price paid for the remaining contracts.
Finally, if the bitcoin price rises above $32,000, the buyer will have to acquire 1.6 call option contracts to limit the potential loss of the strategy.
The maximum profit is twice the expected loss
While the number of contracts in the example above focuses on a maximum gain of 0.30 BTC ($5,700) and a possible loss of 0.135 BTC ($2,560), most derivatives exchanges accept orders as low as 0.10 contract. Therefore, the strategy allows a net profit if bitcoin trades between $20,000 and $29,600 (+56%) on November 25.
The maximum net gain is between $23,000 and $25,000, a return that is more than double the expected loss. Furthermore, with 35 days to the expiry date, this strategy gives the holder peace of mind, unlike futures trading, which has an inherent risk of liquidation.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Cointelegraph.com. All investment and business transactions involve risk. You should do your own research before making a decision.