How do professional traders use the options market to make a profit during volatile periods?



It may not be possible to predict fluctuations in bitcoin prices, but professional traders always use a special strategy that is highly profitable and low cost.

According to the Kevin Telegraph, small traders typically use leverage futures, which are very likely to be liquidated. However, trading in the bitcoin options market provides great investment opportunities for investors who have enough experience and want to maximize their profits and reduce their losses to a minimum.

Using multiple call options is a strategy whose return can be six times the potential loss. In addition, depending on the investor’s perspective, this strategy can be used in both upstream and downstream markets.

The lack of transparency in the legal status of digital currencies has long been a significant obstacle for investors. As a result, retailers turned their attention to neutral market strategies when the uptrend of bitcoin closed at nearly $ 47,000 on March 30. Neutral market strategies refer to the ways in which traders can take advantage of both rising and falling prices.

Read also: What is an option contract? + Video

How to win with options for trading in volatile markets?

Traders can make a profit using the Long Butterfly strategy, even if the price of bitcoin remains the same. However, you should note that transactions with bitcoin options have a specific expiration date; This means that the price must reach a predetermined level in a certain period.

In the example below, there are several options for trading bitcoin with an expiration date of April 29, but traders can also use this strategy in the Atrium Option market or at different time intervals. During these options, the price of bitcoin was $ 47,370; So the cost of adopting this strategy may be a little different now, but its effectiveness is not changing.

How do professional traders use the options market to make a profit?
Estimating the profit / loss ratio in the butterfly strategy.

In the image above, the trader used this strategy to buy a 7.3-bitcoin call option contract with an agreed price of $ 46,000 to take advantage of the increase in the price of this digital currency. Meanwhile, the contract offers the sale of 16 bitcoins worth $ 50,000 at an agreed price.

The trader must purchase the option contract to purchase 4.8 bitcoins for $ 52,000 and 3.9 bitcoins for $ 55,000 to reduce his risk at prices higher than the current bitcoin price.

In the example above, the trader makes a profit with a random result between $ 46,700 (down 1.5%) to $ 53,500 (down 12.9%). The best result he can get is $ 50,000 with a net profit of 0.47 bitcoins. Meanwhile, if the price of bitcoin is below $ 46,000 or over $ 55,000 on April 29 (May 9), the trader will eventually lose 0.11 bitcoin.

The appeal of the Long Butterfly strategy is that it allows traders to make sure that their profits can be up to six times their maximum loss. Overall, given the limited trend of bitcoin, the risk-reward ratio of this strategy will be much better than leverage futures.

Even if the price of bitcoin remains stable, traders can still benefit from this strategy. In this case, only 0.11 bitcoins are needed, which is the initial price needed to enter this strategy, as well as its maximum loss.

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