This is the Ethereum options strategy professional traders use when the London hard fork approaches
Ethereum’s upcoming London hard fork could be a perfect entry point for bullish options traders.
The Ethereum network will undergo a major upgrade on August 4th, when the long-awaited London hard fork is set to start at block 12,965,000. The transition is part of a roadmap to Ethereum 2.0 that aims to move the network to a proof-of-stake (POS) consensus mechanism.
By eliminating the dependency on energy-intensive mining, the main goal is to significantly increase the capacity of the network through parallel processing, also known as sharding.
The upcoming London hard fork upgrade will implement the main Ethereum Improvement Proposal EIP-1559, which can easily calculate ether gas fees. This controversial change involves a burn of transaction fees that could potentially turn Ether into a deflationary asset.
Over the past month, ether price has been pretty grim, despite effectively rebounding from the lows of $ 1,500, but traders remain cautious about opening positions. For the current nature of the price action, option strategies offer a great opportunity for investors with tight trade range goals.
For example, using leveraged futures could be a solution to a situation where people expect the price to increase by 20% but the downside would be a strict stop loss requirement. In short, risk-return often does not pay off in volatile markets.
Let’s find out the strategy of the long butterfly options
How it can give traders an advantage in narrow markets.
Butterfly is a non-directional, limited risk option strategy designed to have a high probability of yielding limited profits when the future volatility of the underlying asset is expected to be lower or higher than the current implied volatility of the asset.
Long butterfly strategy
Using multiple call options can create a strategy that allows the wins to be three times the potential loss. The long butterfly strategy enables traders to profit from the uptrend while limiting losses.
Below is the expected return with Ether options for the August 27th expiration date, but this strategy can be used with other time frames as well. Although costs vary, it does not affect overall efficiency. Will Ether rise during the London Hard Fork? This is an option strategy that professional traders use Estimated profit / loss
Source: Deribit Position Builder
This call option gives the buyer the right to purchase the asset, but the seller of the contract receives negative (potential) risk. Because of this, the Long Butterfly strategy opens a short position with a call option of $ 2,800.
To execute the order, the investor buys 3 call options on Ether with an exercise price of 2,400 USD and sells 4 calls for 2,800 USD at the same time. To complete the trade, they must buy 1 ether of $ 4,000 worth of call options to provide bullish protection.
The derivative contract is priced in ether and $ 2,366 is the price when this strategy is quoted.
The reward is a 3: 1 win ratio with some limited drawbacks
In this situation, any result from $ 2,485 (5% increase) to $ 3,620 (53% increase) results in a net profit – for example, a 15% price increase to $ 2,720 results in a net profit of 0.25 ether.
Meanwhile, if the price is below $ 2,400 or above $ 4,000 on August 27, the maximum loss is 0.105 ether.
The appeal of the butterfly strategy is that it is possible to have 0.32 ethers back at $ 2,820, which is more than three times the maximum loss. In general, trading offers much better risk-return results than leveraged futures trading. Option strategies that involve heavily exercise prices offer good returns for bullish traders looking to get exposure to the London hard fork of Ethereum on August 4th. The only upfront fee required is 0.105 ether, enough to cover the maximum loss.
This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
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