Bitcoin Option Trading Tips to Make Profits in a Volatile Market

Bittime  - Bitcoin trading offers significant profits but can also have negative impacts in the form of losses if a trader is not careful. In fact, many traders choose to trade spot and futures to buy and sell crypto assets. Apart from that, there is also option trading or options for Bitcoin trading.

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What are Bitcoin Options?

Bitcoin options are a type of derivative contract that gives the buyer or seller the right, not the obligation, to buy or sell Bitcoin at a certain price (strike price) on a certain date (expiration date). By using Bitcoin options, you can speculate on the direction of Bitcoin price movement, both up and down, with limited risk.

Bitcoin options have two types, namely call options and put options. A call option gives the buyer the right to buy Bitcoin at the strike price, while a put option gives the buyer the right to sell Bitcoin at the strike price. To obtain this right, the buyer must pay a certain amount of money (premium) to the seller.

One of the advantages of Bitcoin options is that you can combine various types of options to create a strategy that suits your expectations and risk tolerance. One popular and effective strategy is the long condor with a call option, or iron condor.

How Does the Iron Condor Strategy Work?

The iron condor strategy is a strategy that is suitable for those of you who are not sure about the direction of Bitcoin price movements, or who expect Bitcoin prices to move within a certain range. This strategy involves buying and selling four types of call options with different strike prices and expiration dates.

The iron condor strategy can provide maximum profits if the Bitcoin price is between the two middle strike prices at the expiration date, and maximum losses if the Bitcoin price is outside the two outer strike prices at the expiration date.

This strategy can also provide protection against price movements that are not too large, both when rising and falling.

The following is an example of applying the iron condor strategy to a Bitcoin option expiring on December 31, 2021, assuming the current Bitcoin price is $57,600.

• First, you buy 0.54 call option contracts with a strike price of $52,000 and a premium of $5,000. This means you have the right to buy 0.54 Bitcoin at $52,000 on December 31, 2021, paying $5,000 x 0.54 = $2,700.
• Second, you sell a 0.50 call option contract with a strike price of $56,000 and a premium of $3,000. This means you have an obligation to sell 0.50 Bitcoin at $56,000 on December 31, 2021, receiving $3,000 x 0.50 = $1,500.
• Third, you sell a 0.45 call option contract with a strike price of $64,000 and a premium of $1,000. This means you have an obligation to sell 0.45 Bitcoin at $64,000 on December 31, 2021, receiving $1,000 x 0.45 = $450.
• Fourth, you purchase 0.41 call option contracts with a strike price of $70,000 and a premium of $500. This means you have the right to buy 0.41 Bitcoin at $70,000 on December 31, 2021, by paying $500 x 0.41 = $205.

By making these four transactions, you have formed an iron condor strategy. The total premium you pay is $2,700 + $205 - $1,500 - $450 = $955.

This is the cost you will incur to create this strategy, and is also the maximum loss you can incur if the price of Bitcoin is outside the $52,000 - $70,000 range on December 31, 2021.

How to Calculate the Profits and Losses of the Iron Condor Strategy?

The profits and losses of the iron condor strategy depend on the price of Bitcoin at the expiration date. Here are some possible scenarios:

• If the price of Bitcoin is between $56,000 and $64,000, you will earn a maximum profit of $3,045. This is because all the options you buy and sell will expire with no value, so you only get the difference between the premium you paid and received.
• If the price of Bitcoin is between $52,000 and $56,000, or between $64,000 and $70,000, you will see reduced profits. This is because one of the options you buy will have an intrinsic value, so you must subtract that value from the difference in the premium you paid and received.
• If the price of Bitcoin goes below $52,000, or above $70,000, you will incur a maximum loss of $955. This is because the two options you buy will have intrinsic value, so you must add that value to the difference in the premium you paid and received.

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What are the Advantages and Disadvantages of the Iron Condor Strategy?

The iron condor strategy has several advantages and disadvantages, namely:

Excess

• This strategy has a limited and defined risk, which is equal to the total premium paid.
• This strategy can provide consistent profits if the Bitcoin price moves within a specified range.
• This strategy can reduce the impact of price volatility and the passage of time, because the premiums paid and received cancel each other out.

Lack

• This strategy has a limited and defined profit potential, namely the difference between the middle and outer strike prices minus the total premium paid.
• This strategy requires higher transaction costs, because it involves four different types of options.
• This strategy requires more frequent adjustments, as significant price movements can change its profitability.

Conclusion

The iron condor strategy is a Bitcoin option strategy that can be used by traders who are unsure of the direction of Bitcoin price movements, or who expect Bitcoin prices to move within a certain range. This strategy involves buying and selling four types of call options with different strike prices and expiration dates.

The iron condor strategy has limited and defined risks and rewards, and can reduce the impact of price volatility and the passage of time. However, this strategy also requires higher transaction costs, and more frequent adjustments.

How to Buy Crypto on Bittime

You can buy and sell crypto assets in an easy and safe way through Bittime. Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappebti. 

To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet. For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. 

Monitor price chart movements of Bitcoin (BTC) , Ethereum (ETH), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.

Also Read:

What Does Call Options Mean When Trading?

Basic Guide to Crypto Trading Strategies for Beginners

Bitcoin Analysis: The Effect of the United States Election on Bitcoin Prices

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.