Bitcoin hit a 2022 low of $17,580 on June 18 and many traders are hoping that was the bottom, but (BTC) has been unable to make a daily close above $21,000 for the past six days. Because of this, traders are uncomfortable with the current price action, and the threat of many CeFi and DeFi firms struggling with the loss of user funds and potential bankruptcy is weighing on sentiment.
The setback of venture capital Three Arrows Capital (3AC), which defaulted on its financial commitments on June 14, and Asia-based lending platform Babel Finance, citing liquidity pressures as the reason for halting disbursements are just two recent examples.
This news caught the attention of regulators, particularly after Celsius, a crypto lending company, suspended user payouts on June 12. On June 16, securities regulators from five states in the United States reportedly launched investigations into crypto lending platforms.
There is no way of knowing when sentiment will shift and trigger a bitcoin bull run, but for traders who believe BTC will hit $28,000 by August, there is a low-risk options strategy that will provide a decent return with limited risk .
The Iron Condor offers returns for a specific price range
Sometimes it pays to throw a “Hail Maria” by being leveraged 10 times over futures contracts. However, most traders are looking for ways to maximize profits while limiting losses. For example, the crooked “Iron Condor” maximizes gains near $28,000 by the end of August, but limits losses when the expiry is below $22,000.
Bitcoin options iron condor skewed strategy returns. Source: Deribit Position Builder
The call option gives its holder the right to purchase an asset in the future at a specified price. For this privilege, the buyer pays an upfront fee known as a premium.
Meanwhile, the put option offers its holder the privilege to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling this instrument (put) offers exposure to the upside.
The Iron Condor consists of selling the call and put options at the same expiry price and date. The example above was set using August 26 contracts, but can be adapted for other timeframes.
The target profit range is between $23,850 and $35,250
To initiate the trade, the investor must short 3.4 contracts of the $26,000 call option and 3.5 contracts of the $26,000 put option. Then the buyer must repeat the process for the $30,000 options using the same expiry month.
Buying 7.9 contracts of the $23,000 put option to protect against a possible downtrend is also required. Buying another 3.3 contracts of the $38,000 call option to limit losses above the level.
This strategy yields a net profit if Bitcoin trades between $23,850 and $35,250 on August 26th. Net gains peak at 0.63 BTC ($13,230 at current prices) between $26,000 and $30,000, but remain above 0.28 BTC ($5,880 at current prices) as bitcoin trades in the $24,750 and 32,700 range $.
The investment required to open this strategy is the maximum loss, i.e. 0.28 BTC or $5,880, that will occur if Bitcoin trades below $23,000 or above $38,000 on August 26th. The benefit of this trade is that it covers a reasonable target range while also providing a 125% return on potential loss.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.