Although it is difficult to predict when the market will bottom, savvy traders can target specific trading ranges using options methods such as the Iron Condor setup.
Many traders believe that Bitcoin’s 2022 low of $17,580 was reached on June 18; however (BTC) failed to close the daily above $21,000 last week. Recent price action has worried traders, and the prospect of numerous CeFi and DeFi firms dealing with loss of user funds and potential bankruptcy is dampening sentiment.
The two most recent cases are the impact of venture capital firm Three Arrows Capital (3AC), which failed to meet its financial commitments on June 14. Lending site Babel Finance stopped withdrawals due to liquidity issues.
Regulators took notice of the news, especially as cryptocurrency lending firm Celsius suspended customer transactions on June 12. Additionally, on June 16, five U.S. state securities regulators reportedly began investigating cryptocurrency lending sites.
While it is impossible to predict when investor sentiment will turn and when the Bitcoin bull market will begin, the low-risk strategy offers a decent low-risk reward for investors who believe Bitcoin will reach $28,000 in August.
"Iron Condor" has advantages in a certain price range.
If you use the futures contract 10 times, you can make an "Ave Mary" roll that rarely works.
But most traders try to minimize losses while maximizing profits. For example, the sloping Iron Condor minimizes losses below $22,000 at expiration, but maximizes gains to about $28,000 by August.
A call option gives the right to buy an asset at a specific time. Customers pay a premium for this privilege, which is an upfront payment.
Put options give investors the right to trade an asset at a specified price in the future to protect against losses. However, selling the asset (put option) is conditional on an increase in price.
Selling put and call options at the same price and expiration date is known as Iron Condor. The example above was created using the August 26 contract, but can be modified for different time periods.
The expected profit range is between $23,850 and $35,250.
Investors would have to short 3.4 contracts of the $26,100 call or 3.5 contracts of the $26,100 put to open the trade. The buyer must then repeat the process for the $30,100 option with the same expiration month.
Also need to buy 7.9 puts with a strike price of $23,000 to hedge against losses. Additionally, another 3.3 call option contracts were purchased at $38,100 to avoid losses above that level.
This approach would yield a net gain if Bitcoin traded between $23,350 and $35,150 on Aug. 26.
The amount required to initiate this strategy is the maximum loss or 0.28 BTC ($5,880) that occurs when Btc trades below $23,000 or above $38,000 on August 26. The benefit of this technique is that it offers a 125% return relative to the risk of loss while covering a reasonable target range.