Main menu


Here's how Bitcoin professional traders plan to profit from BTC's eventual boom above $20,000.

featured image

Bitcoin (BTC) entered an ascending channel in mid-September and resumed sideways activity around $19,500. Due to the bullish nature of the technical formation and the decrease in selling pressure from troubled miners, analysts are expecting a price increase in the next few months.

Bitcoin/USD price in FTX. Source: TradingView

Independent analyst @el_crypto_prof noted that the BTC price has formed a “1-2-3 Reversal Pattern” on a daily timeframe, implying that $20,000 may soon return for support.

Fundamental analysts also attribute side effects to mining companies on the troubled Bitcoin list. Stronghold Digital Mining, for example, announced a debt restructuring on August 16 that includes the return of 26,000 miners.

A public miner, Core Scientific, has sold 12,000 BTC Between May and July, publicly traded mining companies sold 200% of their Bitcoin production. Bitcoin enthusiast @StoneysGhoster adds that excessive leverage causes forced selling, not mining activity itself.

Whatever the base case of Bitcoin’s price rebound above $20,000, investors fear the impact of an eventual stock market crash as central banks continue to raise interest rates to curb inflation.

Given the persistent uncertainty caused by macroeconomic factors, a strategy that yields gains in the $21,000 to $28,000 range and limits losses below $19,000 seems most prudent. In this sense, options markets provide more flexibility to develop custom strategies.

Begins with selling put options for upside risk

Investors can consider the Iron Condor options strategy, which is slightly skewed for a bullish outcome, to maximize returns. While a put option gives its buyer the privilege to sell an asset at a fixed price in the future – selling this instrument provides upside exposure to the price.

Bitcoin options Iron condor warped strategy returns. Source: Deribit Position Builder

The above example was created using BTC November 25 options on Deribit. To initiate the trade, the buyer must short (sell) 1 contract of the $23,000 call and put option. Next, the buyer has to repeat the procedure for options worth $25,000.

A $19,000 put option was exercised to hedge against excessive price movements. As a result, 2.6 contracts will be required depending on the price paid for the remaining contracts.

Finally, if the price of Bitcoin rises above $32,000, the buyer will need to buy 1.6 call options contracts to limit the potential loss of the strategy.

The maximum profit is 2 times the potential loss

While the number of contracts in the above example targets a maximum gain of BTC 0.30 ($5,700) and a potential BTC loss of 0.135 ($2,560), most derivatives exchanges accept orders as low as 0.10 contracts. As a result, the strategy yields a net profit if Bitcoin trades between $20,000 and $29,600 (+56%) on November 25.

The maximum net gain is between $23,000 and $25,000, yielding twice the return on potential loss. Also, with 35 days to expiration, this strategy gives the holder peace of mind – unlike futures trading, which comes with an inherent risk of liquidation.