Typically, traders rely on leveraged futures positions which are very sensitive to forced liquidations. However, Bitcoin options trading offers great opportunities for investors aiming to maximize their gains while limiting their losses.
Using multiple call (call) options can create a strategy able to generate returns six times greater than the potential loss. Moreover, these can be used in both bullish and bearish circumstances, depending on the expectations of investors.
Regulatory uncertainty surrounding cryptocurrencies has long been a major setback for investors and is another reason why market-neutral strategies have caught the attention of traders ever since. Bitcoin’s rally stalled near $47,000 on March 30.
How to profit from a sideways market
The long butterfly strategy allows a trader to make profits even if the price of Bitcoin remains stable. However, it is important to remember that options have a set expiration date. This means that the desired price result must occur during a specified time period.
Bitcoin options were set for the April 29 expiry, but this strategy can also be used on Ether (ETH) options or a different timeframe. At the time of writing, Bitcoin was trading at $47,370 and while the costs vary, their overall effectiveness shouldn’t be affected.
The suggested bullish strategy is to buy 7.3 BTC call (call) options with a strike price of $46,000 for benefit from a price increase. Meanwhile, selling 16 BTC call (call) options at 50,000 creates a negative exposure above this level.
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The trader should buy 4.8 BTC at $52,000 call options and 3.9 BTC at $55,000, balancing the risk above this price.
Winnings can be four times the potential loss
As the estimate above shows, anything between $46,700 (down 1.5%) and $53,500 (up 12.9%) generates a net gain. The best possible outcome occurs at $50,000 and results in a net gain of 0.47 BTC. Meanwhile, the maximum loss for this strategy is 0.11 BTC if the April 29 price trades below $46,000 or above $55,000.
The attraction of this butterfly strategy is that the trader can achieve gains 6 times greater than the maximum loss. Overall, this gives a much better risk-reward ratio compared to leveraged futures, given the limited downside.
This options strategy trade provides an advantage even if the price of Bitcoin remains stable and the only initial fee required is 0.11 BTC, which also reflects the maximum loss.