Historical data shows that it is almost impossible to consistently predict Bitcoin’s price action, and many traders who try it end up losing money. Now that Bitcoin is trading close to $ 50,000, the ultimate goal for most traders is to hold on to their current holdings and increasingly add in a way that is not very risky.
Option strategies provide excellent opportunities for traders who have a fixed target for an asset. The use of leveraged contracts could, for example, be a solution to a scenario in which a price increase of up to the next month by 28% is expected. Using a close stop loss naturally reduces the viability of the trade.
On the other hand, the use of multiple call options can create a strategy that enables profit that is four times higher than the potential loss. It can be used in both bullish and bearish conditions, depending on investors ’expectations.
The long butterfly strategy allows a trader to take advantage of the upside while limiting losses. It is important to remember that options have a set expiration date; therefore, the price increase must take place during the specified period.
The Bitcoin (BTC) calendar options below are for the March 26 expiration date, but this strategy can also be used on Ether (ETH) options or another time frame. Although the cost will vary, its overall effectiveness should not be affected.
The proposed bullish strategy consists of buying 1 BTC worth of $ 48,000 call options, while selling the double amount of $ 56,000 calls simultaneously. To end the trade, you need to buy $ 64,000 call options worth 1 BTC.
Although this call option gives the buyer the right to acquire an asset, the contract seller receives a (potential) negative exposure.
As the above estimate shows, BTC makes a net profit when BTC trades for $ 48,700, between $ 49,380 (1.5% higher) and $ 62,630 (28.6% higher). A price increase of 10% to $ 53,570, for example, results in a net profit of $ 4,000. Meanwhile, the maximum loss of this strategy was $ 1,350 if BTC traded below $ 48,000 or more than $ 64,000 on March 26th.
This allure of this butterfly strategy is that the trader can make a profit of $ 4,050, which is 3x greater than the maximum loss, if BTC falls from $ 53,550 to $ 58,460.
Overall, it provides a much better risk reward on futures trading with leveraged financing due to the limited downside.
Multiple option trading offers a better risk reward for bullish traders who want exposure to the BTC price increase, and the only upfront fee is the $ 1,350, which reflects the maximum loss if the price is below $ 48,000 or higher on the expiration date as $ 64,000.
The views and opinions expressed here are only those of the outhor and does not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You must do your own research when making a decision.