The price of Ether (ETH), which dropped 44% to $4,600 in the last four months, was not a result of being bullish. Due to network congestion, average transaction fees of $30, and other factors, the decentralized finance (DeFi), applications growth that fuelled the rally has slowed down.
Excessive expectations, such as the August 2021 fee burn mechanism with the London hardfork, can also explain the cool-off period. Investors quickly came to the conclusion that Ether would be “ultrasound money” after reducing daily net issuance.
Over the past 24 hours, Ethereum’s network has burned more ETH than were issued by PoW (eth1) or PoS (eth2) networks. This is the first time that this has occurred since EIP-1559 was launched less than three months ago. ETH is extremely sound money
— sassal.eth (@sassal0x) October 28, 2021
History has shown that “hard money”, as it is called, requires decades of consistent monetary policy. The Euro currency, for example, was introduced to the public in 2002, despite negative issuance in 2014 and 2019. Despite this, the Euro currency’s purchasing power has not been able to keep up with hard assets such as gold and real estate.
Case-Shiller U.S. Home Price Index/EUR (orange, left) & Gold/EUR (blue). TradingView
For $68, you could purchase ultra-bullish calls (bull) $4,000 ETC options for May due to the prolonged underperformance of 4 months. With only 75 days to expire, the odds of a 55% rise from the $2,570 current are slim.
While it seems prudent to place your bets on a positive price rise, you should be more selective about the target range. Professional traders employ the “iron condor” strategy to manage their options.
Limiting the upside can reduce losses
Investors seem to be confident in the proof-of stake migration, with 10.2 million ETH having been staked into Eth2 (consensus Layer) deposit contract. The biggest obstacle to the Ethereum network, i.e. Scaling could cause ETH prices to soar.
It seems prudent to find a strategy that maximizes gains of up to $3600 by May 27, However, it is prudent to hedge against a negative 7% performance due to uncertainty surrounding the crypto regulatory efforts of the United States President Joe Biden.
Although the March 9 executive order did not contain any restrictions, it laid the foundation for a stronger federal oversight.
The slightly bullish “Iron Condor” options strategy fits perfectly in this sense.
Options for Ether Iron condors skewed strategy returns Source: Deribit Position Builder
The “Iron Condor”, which sells both bull and bear options, has the same expiry date and price. This example was created using the ETH May 27 options from Deribit.
The profit zone for ETH is between $2,600 – $3,800
The trade should be initiated by the investors shorting (selling 2) 2 contracts of the $3,000 call or put options. The trader will then need to go through the same procedure as for the $3,000.
A protective put of $2,400 was used to protect against extreme price movements. According to the price, 5.20 contracts may be required.
To limit the risk of losing the strategy, Ether will be sold at 2.10 call option prices if it reaches $4,000 above.
This example shows how many contracts can be used to achieve a maximum ETH 0.63 profit and a possible ETH 0.40 loss. If Ether trades between $2.600 and $3.820 on May 27, this strategy will yield a net profit.
Investors can make a profit using the Iron Condor’s distorted version, as long as the Ether price rise is less than 49% before expiry.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.