Historical data shows that it is next to impossible to consistently predict the price movement of Bitcoin and that many traders who try to do so will end up losing money. Now that Bitcoin is trading near $ 50,000, the ultimate goal for most traders is to hold onto their current holdings and gradually increase them in a way that is not particularly risky.
Option strategies provide excellent opportunities for traders who have a set target for an asset. For example, using leveraged futures contracts could be a solution to a scenario where a price increase of up to 28% is expected over the next month. Of course, using a tight stop loss will reduce the profitability of the trade.
On the flip side, using multiple call options can develop a strategy that allows for gains four times the potential loss. These can be used in both bullish and bearish circumstances depending on investor expectations.
The long butterfly strategy enables a trader to profit from the upward movement while limiting losses. It is important to note that options have a set expiration date. Therefore, the price increase must take place during the specified period.
The following Bitcoin (BTC) calendar options are effective as of March 26th. However, this strategy can also be used for Ether (ETH) options or any other time frame. Although costs will vary, overall efficiency should not be compromised.
Profit / Loss Estimate. Source: Deribit Position Builder
The proposed bullish strategy is to buy 1 BTC worth $ 48,000 of call options while selling double that amount of $ 56,000 of calls. To complete the trade, one should buy 1 BTC worth $ 64,000 of call options.
While 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, a result between $ 49,380 (up 1.5%) and $ 62,630 (up 28.6%) gives net profit when BTC trades for $ 48,700. For example, a 10% price increase to $ 53,570 results in a net profit of $ 4,000. The maximum loss of this strategy is $ 1,350 if BTC trades below $ 48,000 or above $ 64,000 on March 26th.
This allure of this butterfly strategy is that the trader can make a profit of $ 4,050, which is three times the maximum loss when BTC expires from $ 53,550 to $ 58,460.
Overall, trading leveraged futures results in a much better risk return given the limited downside potential.
Trading strategies with multiple options offers a better risk reward for bullish traders seeking exposure to the price increase of BTC. The only upfront fee required is $ 1,350 which is the maximum loss if the price is below $ 48,000 or above $ 64,000 at the expiration date.
The views and opinions expressed herein are solely those of the author 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.
