Here's how experienced traders could use BTC options to buy the $20K dip

25-Jun-2022 By: Sudeep Saxena

Here's how experienced traders could use BTC options to buy the $20K dip

On June 18, Bitcoin reached a 2022 low of $17,580. Many traders believed this to be the bottom, but BTC has failed to achieve a daily close over $21,000 for the last six days. As a result, traders are uneasy about the price movement as it stands, and the prospect of numerous CeFi and DeFi firms coping with the loss of user money and potential insolvency is dampening spirits.

The fallout from the venture capital firm Three Arrows Capital (3AC) failing to fulfill its financial commitments on June 14 and the Asia-based lending platform Babel Finance stopping withdrawals due to liquidity pressure are just two recent instances.

Regulators have taken notice of this news, especially when Celsius, a cryptocurrency lending company, stopped allowing customer withdrawals on June 12. Five American state securities watchdogs allegedly started looking into cryptocurrency lending platforms on June 16.

Although it is impossible to predict when investor mood will shift and a Bitcoin bull run will begin, there is a low-risk options strategy that offers a respectable return with little risk for investors who think BTC will hit $28,000 by August.

The "Iron Condor" offers profits for a particular price range.

By using futures contracts to leverage 10 times, occasionally making a "hail Mary" throw pays off. But the majority of traders try to minimize losses while maximizing profits. For instance, the skewed "Iron Condor" minimizes losses if the expiration is below $22,000 but maximizes gains near $28,000 by the end of August.

The right to purchase an asset at a certain price in the future is provided by the call option. The customer makes an advance payment known as a premium in exchange for this right.

As a downside protection measure, the put option gives the holder the right to sell an asset at a defined price in the future. Selling this instrument (put), however, gives exposure to an increase in price.

Selling both call and put options at the same price and date of expiration is known as the Iron Condor. The contracts for August 26 were used in the aforementioned example, but it may also be used for other time periods.

$23,850 to $35,250 is the desired profit range

The investor has to short 3.4 contracts of the $26,000 call option and 3.5 contracts of the $26,000 put option in order to start the transaction. The procedure for the $30,000 options must then be repeated by the buyer using the same expiration month.

It is also necessary to purchase 7.9 contracts of the $23,000 put option to hedge against any downside. To prevent losses over the level, another purchase of 3.3 contracts of the $38,000 call option was made.

If Bitcoin trades on August 26 between $23,850 and $35,250, this approach results in a net gain. Net earnings peak between $26,000 and $30,000 at 0.63 BTC ($13,230 at the current exchange rate), but they continue to exceed 0.28 BTC ($5,880 at the current exchange rate) if Bitcoin trades between $24,750 and $32,700.

The amount needed to launch this strategy is equal to the maximum loss, or 0.28 BTC ($5,880), which will occur on August 26 if Bitcoin trades below $23,000 or over $38,000. The advantage of this strategy is that it covers a suitable target range and offers a 125 percent return compared to the risk of loss.

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