How cautious bullish bitcoin traders use options to keep their exposure up

Bitcoin (BTC) traders seem undecided on their next move, and this is reflected in the price, which has fluctuated between $ 58,400 and $ 63,400 over the past 14 days. There are some bearish signals from the U.S. regulator, but at the same time Bitcoin exchange traded funds (ETFs) with assets under management of over $ 1.2 billion also raised investor expectations over the period.

A November 5 CryptoQuant report confirmed that whales have been taking on most of the selling pressure in the past few days. On-chain custodians turn their attention to the “Walkurs” – the rate of inflows from the largest wallets – and show a significant increase from mid-October to the present day.

In addition, on November 1, the US Treasury Department called on Congress to immediately enact legislation to ensure that issuers of payment stablecoins are regulated in a manner similar to US banks. In fact, the report recommends that stablecoins should only be issued through “insured custodians”.

Institutional money managers, however, managed to get $ 2 billion worth of Bitcoin in capital inflows in October through mutual funds.

Options allow traders to bet on bullish and bearish moves

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

That topic hit the headlines on July 7th when Bloomberg reported an option trading profit of $ 4.8 million from the husband of Nancy Pelosi, the spokeswoman for the US House of Representatives. In a July 2 financial disclosure, Paul Pelosi reportedly exercised a call option to buy 4,000 shares of Alphabet, Google’s parent company, for a real price of $ 1,200.

Options trading offers investors various opportunities to benefit from increased volatility, to maximize profits when the price remains within a certain range, or to hedge against the price decline. Complex transactions involving more than one instrument are known as option structures.

How to limit losses and keep profits unlimited

For those unfamiliar with options trading, Cointelegraph previously published an article detailing all of the internal and external factors involved in options, including the benefits compared to options trading.

To protect yourself against losses due to unexpected price movements, you can use the “Reverse Risk” option strategy. The investor benefits from buying calls, but pays for those calls by selling the call. This setup essentially eliminates the risk of trading sideways stocks, but carries significant risk if the trade value falls.

The above trading only focuses on options on December 31st, but investors will find similar patterns with different maturities. First, one must protect against a downward move by buying 2.45 BTC and placing (selling) $ 44,000 options contracts.

The trader would then sell (sell) 2 put option contracts 54,000 BTC for a net profit above that level. Finally, you buy an options contract of $ 2.20 (buy) at a positive price.

This option structure resulted in no profit or loss between $ 54,000 (down 11.5%) and $ 85,000 (up 39%). With this, the investor is betting that the Bitcoin price on December 31st at 8 a.m. UTC will be above this range and at the same time achieve unlimited profits and a maximum loss of 0.455 BTC.

There is no cost associated with this option structure, but the exchange does require a margin to cover potential losses. Remember that the minimum options that are traded on most derivatives exchanges are 0.10 BTC contracts.

The views and opinions expressed here are those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.

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