Being bullish on Ether (ETH) in the last four months did not pay off as its price fell 44% from $4,600. The growth in decentralized finance (DeFi) apps that fueled the rally fizzled out, in part due to network congestion and average transaction. fees $30 and up.
The cooling-off period can also be attributed to excessive expectations, as the fare burning mechanism implemented in August 2021 with the London hard fork. After drastically reducing daily net issuance, investors concluded that Ether would become "ultrasonic money".
The Ethereum network burned more ETH in the last 24 hours than the PoW (eth1) and PoS (eth2) networks emitted.
This is the first time this has happened since EIP-1559 went live less than 3 months ago.
ETH is ultrasonic money
โ sassal.eth (@sassal0x) October 28, 2021
Unfortunately, history shows that "hard money" requires several decades of reliable monetary policy. For example, the euro currency was released to the public in 2002 despite periods of negative issuance in 2014 and 2019. However, its purchasing power has failed to hold up against hard assets like gold or real estate.
In light of the prolonged 4-month underperformance, one could buy some cheap ultra-bullish (bullish) call $4,000 ETH options for May for $68. However, with 75 days to expiration, the odds of a 55% rally from the current $2,570 are slim.
It seems more prudent to bet on a positive price change, but be more selective with your target range. This is precisely how professional traders use the "iron condor" options strategy.
Reduced losses by limiting the upside
A total of 10.2 million ETH have been staked in the Eth2 deposit contract (consensus layer) and investors seem to trust the proof-of-stake migration. Furthermore, mitigating the biggest hurdle of the Ethereum network, namely scaling, could certainly send the price of ETH skyrocketing.
It seems prudent to find a strategy that maximizes profits up to $3,600 by May 27. On the other hand, hedging a negative 7% yield is also smart considering the uncertainty surrounding US President Joe Biden's decision. crypto regulatory efforts.
Although the executive order signed on March 9 did not announce any restrictive measures, it certainly laid the groundwork for more focused federal oversight.
In that sense, the "Iron Condor" skewed options strategy fits perfectly in a slightly bullish scenario.
The "Iron Condor" sells call (bullish) and put (bearish) options at the same price and expiration date. The example above has been set using the May 27 ETH options on Deribit.
ETH profit zone is between $2,600 and $3,800
Investors must start the trade by shorting (selling) 2 contracts of the $3,000 call and put options. The trader must then repeat the procedure for the $3,200 options.
To protect against extreme price movements, a protection put option of $2400 has been used. Consequently, 5.20 contracts will be necessary depending on the price.
Lastly, should the price of Ether break above $4,000, the buyer will need to purchase 2.10 call option contracts to limit the potential loss of the strategy.
The number of contracts in the example above is targeting a maximum profit of 0.63 ETH and a potential loss of 0.40 ETH. This strategy makes a net profit if Ether trades between $2,600 and $3,820 on May 27.
Using the biased version of the Iron Condor, an investor can make a profit as long as the Ether price increase is less than 49% at expiration.
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 move involves risk. You should do your own research when making a decision.
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