Bitcoin price swings (BTC) may be impossible to predict, but there is a strategy frequently used by professional traders that generates high returns with minimal cost.
As usual, retail traders rely on leveraged futures positions that are highly susceptible to forced liquidations. However, Bitcoin options trading provides excellent opportunities for investors looking to maximize profits and limit their losses.
Using multiple call options can create a strategy capable of generating returns six times the potential loss. Furthermore, these can be used in bullish and bearish circumstances, depending on the expectations of the investors.
The regulatory uncertainty surrounding cryptocurrencies has long been a significant setback for investors and this is another reason why market-neutral strategies have drawn the attention of traders since Bitcoin’s rally stalled nearby. of USD 47,000 on March 30.
How to profit in a sideways market
The long butterfly strategy allows a trader to make a profit 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 specific period.
Bitcoin options were set for the April 29 expiration, but this strategy can also be used on Ether options (ETH) or in a different time frame. At the time of writing, Bitcoin was trading at $47,370, and while costs will vary, its overall efficiency shouldn’t be affected.
The suggested bullish strategy is to purchase 7.3 BTC call options with a strike price of $46,000 to benefit from a price rise. Meanwhile, the sale of 16 BTC calls at $50,000 creates negative exposure above that level.
The trader should buy 4.8 BTC in call options at $52,000 and 3.9 BTC at $55,000, balancing risk above this price.
The gains can be four times greater than the potential losses
As the estimate above shows, Any result between USD 46,700 (down 1.5%) and USD 53,500 (up 12.9%) produces a net profit. The best possible result occurs from USD 50,000 and results in a net profit of 0.47 BTC. Meanwhile, the maximum loss for this strategy is 0.11 BTC if the price on April 29 trades below $46,000 or above $55,000.
The appeal of this butterfly strategy is that the trader can secure profits that are 6 times greater than the maximum loss. Overall, it offers a much better risk-reward ratio than leveraged futures trading, considering the limited downside.
This options strategy provides profit even if the Bitcoin price remains flat and the only initial commission required is 0.11 BTC, which also reflects the maximum loss.
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