Historical data shows that it is almost impossible to consistently predict the price action of Bitcoin and many traders who try to do so end up losing money. Now that Bitcoin is trading close to $ 50,000, the ultimate goal for most traders is to keep their current assets and increase them in a way that is not too risky.
Option strategies offer excellent opportunities for traders who have a fixed range target for an asset. For example, the use of leveraged futures contracts may be a solution for a scenario in which a price increase of up to 28% is expected next month. Of course, using a tight stop loss decreases the viability of the trade.
On the other hand, the use of multiple call options (buy) can create a strategy that allows for gains four times greater than the potential loss. This can be used in both bullish and bearish circumstances, depending on investor expectations.
The long butterfly strategy allows the trader to profit from the rise while limiting losses. It is important to remember that the options have a defined expiration date; therefore, the price increase must take place during the defined period.
The Bitcoin (BTC) calendar options below are due on March 26, but this strategy can also be used in the Ether (ETH) options or at a different time period. Although costs vary, their overall efficiency should not be affected.
The suggested bullish strategy is to buy 1 BTC worth $ 48,000 call options and, at the same time, sell twice that amount of $ 56,000 call options. To complete the trade, you must buy 1 BTC worth $ 64,000 call options.
Although this call option gives the buyer the right to acquire an asset, the seller of the contract obtains a (potential) negative exposure.
As the above estimate shows, if BTC is trading for $ 48,700, any result between $ 49,380 (1.5% increase) and $ 62,630 (28.6% increase) generates a net gain. For example, a 10% price increase to $ 53,570 results in a net gain of $ 4,000. Meanwhile, the maximum loss for this strategy is $ 1,350 if the BTC is traded below $ 48,000 or above $ 64,000 on March 26.
The fascination of this butterfly strategy is that the trader can guarantee a gain of $ 4,050, which is 3x greater than the maximum loss, if the BTC trades from $ 53,550 to $ 58,460 with maturity.
Overall, it yields a much better risk-reward than leveraged futures trading, considering the limited downside.
Multi-option strategy trading offers a better risk reward for optimistic traders seeking exposure to the BTC price increase and the only required upfront fee is $ 1,350, which reflects the maximum loss if the price is below $ 48,000 or above $ 64,000 on the due date.
The views and opinions expressed here are exclusively those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.