Ether (ETH) price finally broke the $ 2,000 level this week as aggressive institutional inflow from Grayscale Investments products and declining foreign exchange reserves signaled buying pressures mounted.
While many traders will be able to use perpetual futures and the basic margin investing tools available on most exchanges, they may not be aware of additional tools to help them maximize their profits. An easy, albeit expensive, route is to purchase ether call options contracts.
Ether 60-day historical volatility. Source: TradingView
For example, a March 26 call option with a strike of $ 1,760 is trading at $ 340. In the current situation, the holder would only benefit if Ether trades above $ 2,180 in 39 days, which is a 21% gain over the current $ 1,800. If Ether stays unchanged at $ 1,800, that trader will lose $ 300. This is certainly not a great risk / reward profile.
By using call (buy) options and puts (sell), a trader can develop strategies to lower these costs and improve potential profits. They can be used in both bullish and bearish circumstances, and most exchanges now offer readily accessible option platforms.
The proposed bullish strategy is to sell a put of $ 2,240 to create positive exposure to Ether, while selling a call of $ 2,880 to reduce profits above that level. These trades were modeled using the $ 1,800 Ether price.
Two out-of-the-money positions (small chances of winning) are required to protect against possible price drops below 20% or Ether profits above 130%. These additional trades give the trader security and at the same time reduce the margin requirements (collateral).
Profit / loss estimate. Source: Deribit Position Builder
The above trade consists of selling one 1-ether contract of the March 26 put option with a strike of $ 2,240 while selling another 1-ether contract of the strike of $ 2,880. The additional trades also avoid the unexpected scenarios for the same expiration date.
The trader must buy 0.73 ether contracts worth $ 4,160 to avoid excessive upside losses. Similarly, buying 1.26 ether contracts for $ 1,440 protects against major negative price movements.
As the above estimate shows, any result between $ 1,780 and $ 3,885 is positive. For example, a 20% price increase to $ 2,160 results in a net profit of $ 478. Meanwhile, if Ether trades at $ 1,440 or less on March 26, the maximum loss from this strategy is $ 425.
On the other hand, this strategy, when expired, can produce a positive profit of $ 580 or more from $ 2,240 to $ 3,100. Overall, for example, trading leveraged futures results in a much better risk return. Using triple leverage would cause a loss of $ 425 once Ether falls 8%.
This multi-option strategy trading offers a better risk-return for those looking to expose themselves to the price hike of ether. In addition, the strategy does not require up-front funds other than margin or collateral deposit requirements.
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.
