How Cautiously Bullish Bitcoin Traders Use Options to Maintain BTC Exposure
Cryptocurrencies, Signals, Trading
The risk reversal options strategy is used by Bitcoin traders pretty often for the purpose of maintaining safe exposure. During November of last year, it was witnessed that the price of BTC had been moving back and forth between 57,000 and 63,000 for a period of about 15 days. This swaying of the price was fueled by Bitcoin traders being uncertain at the stage as good as well as bad signs prevailed in the market.
BTC ETF boosted the expectations of investors while the US administrative front sent negative signs towards the market. Bitcoin trade exchanged assets (ETF) outperformed $1.2 billion worth of resources under admin, which supplemented the assumptions of financial backers. Reports surfaced that the selling tension was majorly represented by whales.
The Depository Department of the United States sought the implementation of the enactment that would guarantee the management correspondence of installment stablecoin backers by the US banks. For this purpose, it asked Congress to authorize the enactment on the 1st November 2021. In simpler terms, the report looked for stablecoins to be handed through vault foundation-protected elements.
However, ProShares Bitcoin Strategy ETF welcomed an inflow of $1.2 billion on 19th October, according to the CoinShared stream report released on 31st October. Institutional cash supervisors, somehow, found a way to add Bitcoin worth $2 billion through common assets.
Understanding Crypto Options Trading
In comparison with perpetual swaps or crypto futures, crypto options usually provide traders with solutions for digital asset trading that are low-risk and low-cost. An option does not put an obligation on its buyer but rather offers them a right to trade an underlying asset before the date of expiry, at a set price. It is simply a kind of a derivative contract. A "put" option is the purchaser's right to sell, while a "call" option is their right to buy the asset.
Options can be settled against Ether, Bitcoin, or any other actual cryptocurrencies as well as against cash (USD). An option is not any different than other derivatives and enables traders of crypto to make speculations on the underlying asset's future price. OKEx, which is the second-largest exchange of crypto options, delivers crypto assets to traders in a physical manner when they exit a trade. This means that the traders receive Bitcoins as profits at the time of settlement. Deribit, which is the largest crypto options platform, on the other hand, settles the contracts against cash.
The process of options trading starts with the seller creating or writing call as well as put options contracts that have the dates of expiry mentioned on each of them. This is the date that the contract must be settled by. The strike price is also mentioned on each contract which is the price at which the buyer of the contract can buy or sell the asset before it expires. The seller of options lists the created contracts on any crypto options platform. A buyer of an option has the option of placing an order on a platform as well, and a seller can then sell into it.
Bearish as well as Bullish Moves Can Be Bet Upon Through Options
Institutional traders were quick to turn their attention, as well as volumes, to the crypto market pretty soon after its introduction, even though derivatives trading has been there for over fifty years. It has been a popular belief for very long that derivatives markets are manufactured to welcome excessive leverage and gambling, but that is far from the truth.
The options trading came to everyone's attention when Paul Pelosi yielded a $4.8 million profit from it. He bought 4,000 shares of Alphabet exercising a call option for a $1,200 real price. Traders can benefit from options trading in several ways. They can hedge against the price decline and maximize their profits when the price is hovering around a certain range. In short, option structures, which involve more than a single instrument and are complex transactions, offer traders a number of great opportunities that they can leverage to benefit from high volatility.
How Cautiously Bullish Bitcoin Traders Maximize Profits and Limit Losses
A number of traders are still unfamiliar with the intricacies of options trading. There are several benefits that options offer, and there are many factors, both internal and external, involved in it as well. The reverse risk options strategy is extremely popular among experienced and expert traders that is extremely useful for protection against unexpected movements of the price that usually result in losses. Traders can benefit from buying calls, but they have to pay for them by selling the call.
The risk associated with the trade of sideways stocks is mitigated by this setup. However, in the case of the trade value falling, it carries extensive risk.
The figure focuses explicitly on the 31st December options, but traders can come across patterns with varying maturities that are similar to this one. The first thing a trader must do is to buy 2.45 BTC and sell 44,000 options contracts in order to get protected against a downward move. Next, the investor should sell two put option contracts, 54,000 BTC, to get a net profit above the level. Lastly, they purchase a 2.20 options contract at a positive price.
The option structure mentioned above yield no loss or profit between 85,000 (up 39%) and 54,000 (down 11.5%). The trader, with this strategy, places a bet that at 8:00 a.m. on 31st December, the price of Bitcoin will be beyond this range. This allows them to achieve a maximum loss and unlimited profits of 0.455 BTC.
This option exchange requires a margin for the purpose of covering potential losses even though there is no cost associated with this structure. Keep in mind, though, that on most derivative exchanges, the minimum options for trading are 0.10 BTC contracts.