How traders who are bullish on Bitcoin use options cautiously to maintain BTC exposure

How traders who are bullish on Bitcoin use options cautiously to maintain BTC exposure


Bitcoin (Bitcoin) Traders seem to be hesitant about the next step, which is reflected in the price fluctuation between US$58,400 and US$63,400 in the past 14 days.U.S. regulators have issued some bearish signals, but at the same time, Bitcoin exchange-traded funds (ETFs) have exceeded $1.2 billion in assets Under management also boosted investor expectations.

Coinbase’s Bitcoin price (in U.S. dollars). Source: TradingView

The CryptoQuant report on November 5 confirmed that whales accounted for the majority Selling pressure The last few days. On-chain monitoring resources focused their attention on the “exchange whale ratio”-the percentage of inflows from the largest wallets-and showed a significant increase from mid-October to today.

In addition, on November 1st, the United States Ministry of Finance Urge Congress to take immediate action to enact legislation to ensure that issuers of payment stablecoins are subject to similar regulations as Bank of America. In practice, the report recommends that stablecoins should only be issued through “institutions subject to depositary funds”.

Despite this, the institutional money manager managed to increase Bitcoin worth $2 billion Passed mutual funds in October. According to the CoinShares traffic report on October 31, the ProShares Bitcoin Strategy ETF, which was officially launched on October 19, had an inflow of US$1.2 billion.

Options allow traders to bet on bullish and bearish movements

Contrary to popular belief, the derivatives market is not designed for gambling and excessive leverage. Derivatives trading has existed for more than 50 years, and institutional traders have been turning their attention and trading volume to cryptocurrencies in the past few years.

This topic became the focus on July 7, Bloomberg reported that the husband of US House Speaker Nancy Pelosi received US$4.8 million in options trading proceeds. In the July 2 financial disclosure, Paul Pelosi reported that he exercised a call option to acquire 4,000 shares of Google’s parent company Alphabet at an exercise price of $1,200.

Option trading provides different opportunities for investors who seek to profit from increased volatility, maximize returns when prices remain within a certain range, or obtain protection from sharp price drops. Those complex transactions involving more than one instrument are called option structures.

How to limit losses and maintain unlimited gains

For those who are not familiar with options trading, Cointelegraph Published before An article details all the ins and outs of options, including the benefits of futures contract trading.

In order to hedge against losses caused by unexpected price fluctuations, a “risk reversal” option strategy can be used. Investors benefit from the long-term benefits of call options, but pay for these options by selling put options. Basically, this setting eliminates the risk of sideways trading in stocks, but if asset trading falls, it does bring huge risks.

Profit and loss estimates. Source: Deribit Position Builder

The above transaction only focuses on options on December 31, but investors will find similar patterns with different periods. First, you need to buy protection from the downside by buying a 2.45 BTC put (sell) option contract of $44,000.

Then, the trader will sell 2 BTC put (sell) $54,000 option contracts to obtain a return above that level. Finally, buy a 2.20 call (buy) $85,000 option contract to obtain positive price exposure.

This option structure has no gain or loss between USD 54,000 (down 11.5%) and USD 85,000 (up 39%). In doing so, investors bet that the Bitcoin price at 8:00 AM on December 31st will be higher than this range, while gaining unlimited gains and exposure to a maximum loss of 0.455 BTC.

This option structure has no associated costs, but the exchange will require margin deposits to make up for potential losses. Keep in mind that the minimum option transaction on most derivatives exchanges is 0.10 BTC contract.

The views and opinions expressed here only represent author It does not necessarily reflect the views of Cointelegraph. Every investment and transaction involves risks. When making a decision, you should conduct your own research.