Explain in detail a BTC call option strategy without liquidation risk

Bitcoin forward options and longs are still making waves with their extremely bullish bets, but they must also admit that the probability of Bitcoin exceeding $60,000 in the next few months is slim.

Many traders have increased their leveraged long positions through futures contracts to chase elusive historical highs, but this seems to be an unrealistic result.

According to popular on-chain analyst Willy Woo, the outflow of funds from exchanges and the accumulation of Bitcoin miners and whales indicate that the price of Bitcoin will reach the range of $50,000 to $65,000 in the next few months.

Even the US Securities and Exchange Commission Chairman Gary Gensler also believes that encryption currency will not go away, and may in the future of finance play an important role in the field. Therefore, in the next few months, moderate bullishness will likely bring positive results.

For those bullish traders who believe that the price of Bitcoin will break upward, but are unwilling to face the liquidation risks brought by futures contracts, the “buy eagle arbitrage with call options” strategy may produce more desirable results.

Options are a safer bet to avoid liquidation

The options market provides more flexibility for developing custom strategies, and there are two tools to choose from. Call options provide buyers with protection from upward price increases, while protective put options have the opposite effect. Traders can also sell derivatives to create unlimited negative exposure, similar to futures contracts.

Explain in detail a BTC call option strategy with no liquidation risk

Bitcoin Option Strategy Returns Source: Deribit Position Builder

This buying eagle arbitrage strategy will expire on September 21 and use a slightly bullish range. The same basic structure can also be applied to bearish expectations, but we will assume that most traders are looking for upside.

At the time of pricing, the transaction price of Bitcoin was $37,830, but a similar result can be achieved at any price level.

The first transaction requires the purchase of 1.20 Bitcoin call options worth $42,000 to create a positive exposure above this price level. Then, in order to limit gains above $46,000, the trader needs to sell a call option contract of $46,000 for 1.1 bitcoins.

In order to complete this strategy, traders need to sell 1.3 Bitcoin call option contracts worth $56,000 to limit the gains above this price level. Then 1.22 Bitcoin call options worth $60,000 are needed to provide upside protection to limit the losses incurred when Bitcoin unexpectedly skyrocketed.

In this case, the gains far outweigh the losses

This strategy sounds complicated to execute, but the required margin is only 0.0265 BTC , which is also the biggest loss. If the bitcoin transaction price is between $42,950 (up 13.5%) and $59,450 (up 57%), a net profit will be generated.

Traders should keep in mind that if there is sufficient liquidity, they may also close their positions before expiration on September 21. The maximum gain is 0.0775 BTC, which is valued between US$46,000 and US$56,000, which is almost three times the potential loss.

There are more than 50 days before the expiry date. This strategy makes holders feel at ease because there is no liquidation risk like futures trading.

Another benefit is that most derivatives exchanges accept orders as low as 0.10 Bitcoin contracts, which means that traders can build the same strategy with a smaller amount.


Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/explain-in-detail-a-btc-call-option-strategy-without-liquidation-risk/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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