Bears have pushed Bitcoin price to the lowest rungs of its current range, but savvy traders can still generate a nice profit via the Iron Condor options strategy.
In the last 29 days, Bitcoin (BTC) has been ranging from $31,000 to $36,000 as the impact of the recent China ban and a $1.4 billion Grayscale GBTC share unlocking continue to pressure markets.
China’s government implemented a series of measures to curb cryptocurrency mining and trading by ordering the immediate shut down of some operations and instructing domestic banks to suspend the bank accounts of entities involved in the industry.
Meanwhile, the $21 billion trust fund Grayscale and its GBTC security is facing a troublesome period as institutional investors’ 6-month lock up comes to an end, creating a potential $1.4 billion sell-off. However, it’s worth noting that the 654,000 BTC tokens under management will not be moved on the market.
As a result of these factors, Bitcoin price has been stuck in a range for months and generally traders appear to be sitting on their hands until clarity on the entire situation clears up.
While traders are skilled at using perpetual futures contracts, most are unaware of additional instruments that can be used to maximize their gains. This holds especially true when markets range sideways and creates a perfect scenario for trading options.
For example, one can build an options strategy that maximizes gains even when there is not much price action.
By using both call (buy) and put (sell) options, a trader can create strategies to generate gains in sideways markets. These can be used in bullish and bearish circumstances, and most derivatives exchanges offer accessible options platforms.
The Iron Condor strategy favors a tight range
The Iron Condor is a neutral strategy that consists of selling a $32,000 put to create positive exposure to Bitcoin while simultaneously selling a $34,000 call to reduce gains above that level. These trades were modelled from Bitcoin price at $31,750 and this trade uses an Aug. 27 expiry (40 days).
Profit / Loss estimate. Source: Deribit Position Builder
Two out-of-the-money (small odds) positions are needed to protect from the possible price crashes below $28,000 or Bitcoin appreciation above $38,000. These additional trades will give the trader peace of mind while also reducing the margin (collateral) requirements.
Any outcome on Aug. 27 between $29,200 (down 8%) and $36,660 (up 15%) yields a positive result. The maximum gain happens between $31,800 and $34,200, resulting in a 0.09 Bitcoin profit. On the other hand, the worst outcome is a 0.045 Bitcoin loss.
A similar structure could be deployed for Ethereum (ETH) options but traders should account for the London hard fork on Aug. 4, which could potentially induce sharper volatility.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.