Bitcoin hit a 2022 low of $17,580 on June 18 and many traders expect it to be the bottom, but (BTC) has been unable to produce a daily close above $21,000 for the past six days. For this reason, traders are uneasy with the current price action and the threat of many CeFi and DeFi companies dealing with user funds loss and potential insolvency weighs on sentiment.
Asia-based lending platform Babel Finance is one of the most recent examples, citing liquidity pressures as a reason for the setback and withdrawal from venture capital Three Arrows Capital (3AC) failing to meet its financial obligations on June 14. There are only two of them.
The news has attracted the attention of regulators, especially after Celsius, a crypto lending firm, suspended user withdrawals on 12 June. On June 16, securities regulators from five states in the United States reportedly launched an investigation into crypto lending platforms.
There is no way to know when sentiment will turn and trigger a bitcoin bull run, but for traders who believe that BTC will hit $28,000 by August, there is a low-risk options strategy that can be used as one with limited risk. Gives good returns.
“Iron Condor” Offers Returns for a Specific Price Range
Sometimes throwing a “Hail Mary” pays off tenfold leverage through futures contracts., However, most traders are looking for ways to maximize profits while limiting losses. For example, the skew “Iron Condor” maximizes gains near $28,000 by the end of August, but limits losses if expiration is below $22,000.
A call option gives its holder the right to acquire an asset at a specified price in the future. For this privilege, the buyer pays an upfront fee which is known as premium.
Meanwhile, the put option provides its holder with the privilege to sell the asset at a certain price in the future, which is a downside protection strategy. On the other hand, selling this instrument (put) provides a risk of price increases.
The Iron Condor involves selling call and put options at the same expiration price and date. The above example is set using the August 26 contracts, but can be adapted for other timeframes.
Target Profit Zone $23,850 to $35,250 . Is
To start trading, the investor needs 3.4 contracts of $26,000 call options and 3.5 contracts of $26,000 put options. Then, the buyer needs to repeat the process for the $30,000 options using the same expiration month.
It is also necessary to buy 7.9 contracts of the $23,000 put option to protect against eventual downside. On another purchase of 3.3 contracts of the $38,000 call option to limit losses above the level.
If bitcoin trades between $23,850 and $35,250 on August 26, this strategy yields a net profit. Net gains range between 0.63 BTC ($13,230 at current prices) to $26,000 and $30,000, but they remain above 0.28 BTC ($5,880 at current prices) if bitcoin trades in the range of $24,750 and $32,700.
The investment required to open this strategy is the maximum loss, hence 0.28 BTC or $5,880, which would occur if bitcoin trades below $23,000 or above $38,000 on August 26th. The advantage of this trade is that a reasonable target area is covered, while providing a 125% return compared to potential losses.
The views and opinions expressed here are solely those of Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.