How cautiously bullish bitcoin traders are using options to maintain exposure to BTC?

Bitcoin (BTC) traders seem undecided about the next step and this is reflected in the price, which has fluctuated between $ 58,400 and $ 63,400 over the past 14 days. There are some declining signs from the U.S. regulatory front, but at the same time Bitcoin Exchange Traded Funds (ETFs) topping over $ 1.2 billion in assets under management have also raised investor expectations.

Bitcoin price in USD on Coinbase. Source: TradingView

A November 5 CryptoQuant report confirmed that whales have been the biggest selling pressure in recent days. The on-chain monitoring resource focused on the “whale exchange rate,” the percentage of inflows from the largest wallets, and has shown a significant increase from mid-October to the present day.

Also on November 1st The U.S. Treasury Department urged Congress to act swiftly to pass legislation to ensure that stablecoins issuers are regulated in a practical manner similar to U.S. banks, the report recommends that stablecoins be issued only through “companies that are insured custodians”.

How cautiously bullish bitcoin traders are using options to maintain exposure to BTC?
How cautiously bullish bitcoin traders are using options to maintain exposure to BTC?

Still, Institutional money managers managed to add $ 2 billion in Bitcoin through mutual funds in October. According to the CoinShares Flow Report of October 31, the ProShares Bitcoin Strategy ETF, which was officially launched on October 19, accounted for an inflow of $ 1.2 billion.

Options allow traders to bet on bullish and bearish moves

Contrary to popular belief, derivatives markets were not designed for gambling and excessive leverage. Derivatives trading has been around for more than five decades, and institutional traders have shifted their attention and volume to cryptocurrencies in recent years.

The spotlight was on the July 7 issue, when Bloomberg reported a $ 4.8 million gain on options trading by Nancy Pelosi’s husband, the spokeswoman for the US House of Representatives. In a July 2 financial release, Paul Pelosi reported that he was exercising call options to purchase 4,000 shares of Alphabet, the parent company of Google, at an exercise price of $ 1,200.

Options trading offers investors who want to take advantage of higher volatility different ways to maximize profits if the price stays in a certain range or to protect themselves against sudden price drops. These complex operations that involve more than one instrument are known as option structures.

This is how you limit losses and get unlimited profits

For those unfamiliar with options trading, Cointelegraph previously published an article detailing all of the pros and cons of options, including the advantages over trading futures contracts.

The “Risk Reversal” option strategy can be used to cover losses due to unexpected price fluctuations. The investor benefits from a long strategy for the call options, but pays for this by selling the put option. Basically, this setup eliminates the risk of stocks trading sideways, but carries significant risk if the asset is trading lower.

Loss and profit estimation. Source: Deribit Position Builder

The above trading focuses solely on December 31st options, but investors will find similar patterns with different expiration times. First, one must protect against a downward move by buying put option contracts of 2.45 BTC (sell) for 44,000 USD.

Later, The trader will sell 2 BTC put options (sell) with options contracts of $ 54,000 to offset returns above this level. Finally, buying $ 2.20 of 85,000 call options contracts creates positive price risk.

This option structure generates no gains or losses between $ 54,000 (11.5% less) and $ 85,000 (39% more). In this way, the investor is betting that the price of Bitcoin will be above this range on December 31st at 8:00 a.m. UTC while exposing himself to unlimited profits and a maximum loss of BTC 0.455.

There is no cost associated with this option structure, but the exchange does require a margin deposit to cover potential losses. Note that the minimum trade in options on most derivatives exchanges is a 0.10 BTC contract.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement carries risks. When making a decision, you need to do your own research.

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