Here’s how Bitcoin pro traders plan to profit from BTC’s eventual pop above $20K
Bitcoin (BTC) entered an ascending channel in mid-September and has continued to trade sideways activity near $19,500. Due to the bullish nature of the technical formation and a fall in selling pressure from restive miners, analysts expect a price increase in the run of the next couple of months.
Independent analyst @el_crypto_prof noted that BTC’s price formed a “1-2-3 Reversal-Pattern” on a daily timeframe, suggesting that $20,000 could turn to support soon.
Yes, the price action of $BTC is really boring, isn’t it?
However, if you look closely, a textbook “1-2-3 Reversal-Pattern” has formed over the past few days, which should finally send Bitcoin over 20k soon. pic.twitter.com/29Wa64XKQa
— ⓗ (@el_crypto_prof) 20 October 2022
Fundamental analysts also attribute the sideways action to troubled Bitcoin-listed mining companies. For example, Stronghold Digital Mining announced a debt restructuring on August 16 that included the return of 26,000 miners.
A public miner, Core Scientific, sold 12,000 BTC between May and July, while publicly traded miners sold 200% of their Bitcoin production. Bitcoin enthusiast @StoneysGhoster adds that excessive leverage caused the forced sale, not the mining activity itself.
Bitcoin grinds sideways around 20k because public miners are in trouble and have to sell all bitcoin.
Taking on a bunch of debt turned out to be a bad idea.
— StoneysGhost (@StonysGhoster) 8 October 2022
Regardless of the basis for Bitcoin’s price recovery above $20,000, investors fear the impact of a possible stock market crash as central banks continue to raise interest rates to curb inflation.
Considering the continuing uncertainty caused by macroeconomic factors, a strategy that provides gains in the range of $21,000 to $28,000 while limiting losses below $19,000 seems the most sensible. In that sense, options markets provide more flexibility to develop customized strategies.
It starts with selling put options for upside exposure
To maximize returns, investors may consider the Iron Condor option strategy which has been slightly skewed for a bullish outcome. Although the put option gives the buyer the privilege to sell an asset at a fixed price in the future – selling this instrument provides exposure to the price upside.
The example above is set using the BTC November 25 options at Deribit. To initiate the trade, the buyer should short (sell) 1 contract of the $23,000 call and put options. Then the buyer must repeat the procedure for the $25,000 options.
To protect against extreme price movements, a $19,000 put option has been exercised. Consequently, 2.6 contracts will be required depending on the price paid for the remaining contracts.
Finally, if Bitcoin’s price breaks above $32,000, the buyer must buy 1.6 call options to limit the strategy’s potential losses.
The maximum profit is 2 times greater than the potential loss
Although the number of contracts in the example above aims for a maximum BTC 0.30 ($5,700) gain and a potential BTC 0.135 ($2,560) loss, most derivatives exchanges accept orders as low as 0.10 contracts. As a result, the strategy makes a net profit if Bitcoin trades between $20,000 and $29,600 (+56%) on November 25.
The maximum net profit occurs between $23,000 and $25,000, giving a return more than twice the potential loss. Furthermore, with 35 days to the expiry date, this strategy gives the holder peace of mind because, unlike futures trading which comes with an inherent liquidation risk.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
