Bitcoin (BTC) traders seem unsure of their next move, and this is reflected in the price range between $58,400 and $63,400 over the past 14 days. There are some bearish signals from US regulators, but at the same time, Bitcoin exchange-traded funds (ETFs) with assets of over $1.2 billion raised investors’ expectations.
Bitcoin price in US dollars on Coinbase. Source: TradingView
A November 5 CryptoQuant report confirmed that whales have been under pressure from sellers in recent days. The chain’s monitoring resource focused on the “whale exchange rate” – the percentage of inflows from the largest wallets – and showed clear growth from mid-October to today.
On November 1, the US Treasury also asked Congress to quickly pass legislation to ensure that issuers of stablecoins are regulated in the same way as US banks. In practice, the report recommends issuing stacked coins only through “insurance institutions for deposit”.
However, institutional CFOs were able to add $2 billion worth of bitcoin in October through mutual funds. The ProShares Bitcoin Strategy ETF, which was officially launched on October 19, has made $1.2 billion, according to a CoinShares report dated October 31.
Options allow traders to bet on upward and downward movements.
Contrary to many people’s beliefs, derivatives markets were not designed for excessive gambling and influence. Derivatives trading has been around for more than five decades, and institutional traders have shifted their focus – and volume – to cryptocurrencies over the past few years.
The topic became central on July 7, when Bloomberg reported $4.8 million in options trading from the husband of Nancy Pelosi, the speaker of the US House of Representatives. In a financial disclosure on July 2, Paul Pelosi announced the exercise of options to purchase 4,000 shares in Alphabet, Google’s parent company, at an exercise price of $1,200.
Options trading offers many opportunities for investors who want to take advantage of increased volatility, double profits if the price stays within a certain range, or get protection from sharp price drops. These complex trades that involve more than one instrument are known as options structures.
How to reduce losses and keep unlimited gains
For those unfamiliar with options trading, Cointelegraph previously published an article describing all the pros and cons of options, including the advantages of futures trading.
To hedge against unexpected price fluctuations, you can use the “risk reversal” option strategy. The investor benefits from a long position in the put options, but pays them by selling the cushion. This setup essentially removes the risks of sideways trading in stocks, but it does have a significant risk if the asset is trading down.
Performance evaluation. Source: Deribit Position Builder
The above agreement focuses exclusively on alternatives on December 31, but investors will find similar models with different maturities. First, you need to buy downside protection by buying 2.45 BTC put options for $44,000.
The trader would then sell 2 put options (Put) $54,000 BTC to gain above this level.) Finally, buy 2.20 Call (Put) options for $85,000 at a positive price.
This option structure does not result in a profit or loss of $54,000 (down 11.5%) to $85,000 (up 39%). At the same time, the investor is betting that the bitcoin price on December 31 at 08.00 UTC will be above this range, while he will receive unlimited profits and a maximum loss of 0.455 BTC.
This option structure is free, but Oslo Bors will need a margin deposit to cover potential losses. Remember that the minimum trading volume for options on most derivative exchanges is 0.10 BTC lot.