The Long Condor options strategy allows traders to place bullish bets without taking on liquidation risks.
Long-dated Bitcoin options and bulls still make waves with their ultra bullish bets, but even they must admit that the possibility of (BTC) trading above $60,000 in the next couple of months is dim.
Many traders have added leveraged-long positions via futures contracts to chase after the elusive all-time high, but this seems like an unrealistic outcome.
According to Willy Woo, a popular on-chain analyst, exchange outflows and accumulation from BTC miners and whales suggest that Bitcoin price will reach the $50,000 to $65,000 range in the coming sessions.
Even Gary Gensler, the Chair of the United States Securities and Exchange Commission, believes that cryptocurrencies won’t go away and will likely play a big role in the future of finance. Therefore, being moderately bullish for the next couple of months will likely yield positive results.
For bullish traders who think Bitcoin price will break to the upside but are unwilling to face the liquidation risks imposed by futures contracts, the “long condor with call options” strategy might yield more optimal results.
Options are a safer bet for avoiding liquidations
Options markets provide more flexibility to develop custom strategies and there are two instruments available. The call option gives the buyer upside price protection, and the protective put option does the opposite. Traders can also sell the derivatives to create unlimited negative exposure, similar to a futures contract.
This long condor strategy has been set for the Sep. 21 expiry and uses a slightly bullish range. The same basic structure can also be applied for bearish expectations, but we’ll assume most traders are looking for upside.
Bitcoin was trading at $37,830 when the pricing took place, but a similar result can be achieved starting from any price level.
The first trade requires buying 1.20 BTC worth of $42,000 call options to create a positive exposure above this price level. Then, to limit gains above $46,000, the trader needs to sell 1.1 BTC contracts of the $46,000 call.
To complete the strategy, the trader needs to sell 1.3 BTC contracts of the $56,000 call, limiting the gains above this price level. Then a $60,000 upside protection call for 1.22 BTC is needed to limit the losses if Bitcoin unexpectedly skyrockets.
In this situation, the gain far outweighs the loss
The strategy might sound complicated to execute, but the margin required is only 0.0265 BTC, which is also the max loss. The potential net profit happens if Bitcoin trades between $42,950 (up 13.5%) and $59,450 (up 57%).
Traders should remember that it is also possible to close the position ahead of the Sep. 21 expiry if there’s enough liquidity. The max gain occurs between $46,000 and $56,000 at 0.0775BTC, almost three times higher than the potential loss.
With over 50 days until the expiry date, this strategy gives the holder peace of mind because there is no liquidation risk like futures trading.
Another positive is that most derivatives exchanges accept orders as low as 0.10 BTC contracts, meaning a trader could build the same strategy using a much smaller amount.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
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Author: Marcel Pechman