Bitcoin (BTC) traders seem undecided about the next step and this is reflected in the price that ranges between $ 58,400 and $ 63,400 during the last 14 days. There are some bearish signals coming from the US regulatory front, but at the same time, Bitcoin exchange-traded funds (ETFs) outperform. $ 1.2 billion in assets under management has also boosted investor expectations.
A CryptoQuant report on November 5 confirmed that whales have accounted for the majority selling pressure In recent days. The online monitoring resource focused its attention on the "whale exchange rate," the percentage of inflows coming from the largest portfolios, and it showed a clear increase from mid-October to today.
Also, on November 1, the US Treasury Department He urged Congress to act promptly to enact legislation to ensure that issuers of stablecoins are regulated similarly to US banks. In practice, the report recommends that stablecoins be issued only through "entities that are insured depository institutions."
Still, institutional money managers managed to add $ 2 billion in Bitcoin through mutual funds in October. According to the CoinShares flow report on October 31, the ProShares Bitcoin Strategy ETF, which was officially launched on October 19, accounted for a $ 1.2 billion inflow.
Options allow traders to bet on bullish and bearish movements
Contrary to popular belief, derivatives markets were not designed for gambling and excessive leverage. Derivatives trading has been around for more than five decades and institutional traders have been shifting their attention, and volume, to cryptocurrencies in recent years.
The issue became the centerpiece on July 7, when Bloomberg reported a $ 4.8 million profit on the options trading of the husband of Nancy Pelosi, the speaker of the US House of Representatives. In a financial disclosure on July 2, Paul Pelosi reported that he was exercising call options to acquire 4,000 shares of Alphabet, Google's parent company, at an exercise price of $ 1,200.
Options trading presents different opportunities for investors looking to profit from higher volatility, maximizing profits if the price remains in a specific range or gaining protection against sharp price drops. Those complex operations that involve more than one instrument are known as option structures.
How to Limit Losses and Maintain Unlimited Profits
For those unfamiliar with options trading, Cointelegraph previously published an article detailing all the ins and outs of options, including the benefits of trading futures contracts.
To cover losses due to unexpected price fluctuations, the โrisk reversalโ option strategy can be used. The investor benefits from being long on the call options, but pays for them by selling the put option. Essentially, this setup eliminates the risk of stocks trading sideways, but carries substantial risk if the asset trades lower.
The above trade focuses exclusively on December 31 options, but investors will find similar patterns with different expirations. First, one needs to buy protection against a downward movement by buying 2.45 BTC (put) put option contracts of $ 44,000.
The trader will then sell 2 BTC put (sell) $ 54,000 option contracts to make a net profit above this level. Finally, you buy 2.20 $ 85,000 call option contracts for positive price exposure.
That option structure does not generate gains or losses between $ 54,000 (11.5% less) and $ 85,000 (39% more). By doing this, the investor is betting that the price of Bitcoin on December 31 at 8:00 am UTC will be above that range while gaining exposure to unlimited gains and a maximum loss of 0.455 BTC.
There is no cost associated with this option structure, but the exchange will require a margin deposit to cover potential losses. Note that the minimum options trade on most derivatives exchanges is a 0.10 BTC contract.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.
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