How multi-leg options enable traders to take advantage of the ETH price of 2K

Last week, ETH price finally broke the $ 2,000 mark as active institutional inflows into Grayscale Investments products and a decline in foreign exchange reserves suggest mounting pressure to buy.

While many seasoned traders use perpetual futures and the basic margin investment tools available on most exchanges, they may not be aware of other tools that will help maximize their profits. A simple but expensive option is to buy ETH call options contracts.

60-day historical volatility | Source: TradingView

For example, a March 26 call with an exercise price of $ 1,760 will trade at $ 340. In the current situation, holders will only benefit if ETH trades above $ 2,180 for 39 days, which is a 21% increase from $ 1,800. If the ETH remains unchanged at $ 1,800, the trader will lose $ 300. This is certainly not an excellent risk / reward profile.

By using both call and put options, a trader can develop a variety of strategies to reduce costs and improve potential profits. They can be used in bullish and bearish cases, and most brokers currently offer an easily accessible options platform.

A proposed bullish strategy is to sell a put of $ 2,240 to create positive exposure to ETH while simultaneously selling a call of $ 2,880 to reduce profits above that threshold. These transactions are simulated based on the ETH price of 1,800 USD.

It takes 2 out-of-money positions (small odds) to protect yourself from a possible price drop below 20% or an ETH increase above 130%. These additional trades give the traders security and at the same time reduce the margin requirements (collateral).

Estimated profit / loss | Source: Deribit Position Builder

The above transaction consisted of the sale of one ETH contract of the put option dated March 26 with an exercise price of $ 2,240 and the sale of another ETH contract with an exercise price of $ 2,880. Additional trades also help avoid unexpected events for the same expiration date.

Traders must buy a 0.73 ETH contract with a call option of $ 4,160 to avoid undue losses. Similarly, buying a 1.26 ETH contract for a put option worth $ 1,440 protects against major negative price movements.

As the estimates above show, any outcome between $ 1,780 and $ 3,885 is positive. For example, a price increase of 20% to $ 2,160 resulted in a net profit of $ 478. Meanwhile, the maximum loss on this strategy is $ 425 if ETH is trading at $ 1,440 or below on March 26th.

On the flip side, this strategy can produce a net profit of $ 580 or more on expiration between $ 2,240 and $ 3,100. Overall, it offers a much better risk / reward ratio than trading leveraged futures, for example. Using 3x leverage results in a loss of $ 425 once ETH drops 8%.

This multi-option strategy trading offers a better risk / reward ratio for those who want to dedicate themselves to the uptrend in ETH. In addition, there are no prepayments associated with the strategy, with the exception of margin or collateral requirements.

Thuy Trang

According to Cointelegraph

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