The cryptocurrency market saw a 9.5% pump on Oct. 1. This drove Bitcoin (BTC), and Ether (ETH), to their highest levels in twelve days. The price movement can be attributed to a variety of factors, including the U.S. Consumer Price Index, decreasing supply on exchanges, and a bullish “cup and handle” continuation chart formation.
The sudden movement is unlikely to be explained by traders, except for investors who are gaining confidence following the Sept. 19 drop. This was due to contagion fears from Evergrande, a Chinese-based property developer.
Some have criticized the Ethereum network for the $20-plus transaction fees resulting from the sale of nonfungible tokens (NFT) and decentralized finance activity (DeFi). Cross-chain bridges linking Ethereum to proof-of–stake (PoS), networks have partially solved this problem. Friday’s launch of the Umbrella network oracle services shows how quickly interoperability has advanced.
Notable is the positive effect China’s announcement of even more stringent rules last week on volumes at Decentralized Exchanges (DEX). Huobi and Binance, centralized crypto exchanges, announced that service suspensions were being implemented for Chinese residents. This led to a significant outflow in coins. This led to an increase in activity on Uniswap as well as the decentralized derivatives trading platform dYdX.
Despite all the volatility, investors still have reasons to be bullish on Ether throughout the year. However, some of its rivals have also seen significant gains in the last few months due to the limitations of Ethereum layer-1 scaling.
ETH price vs. AVAX SOL, ATOM. Source: TradingView
You can see that Ether’s positive performance of 58% in three months is significantly lower than those emerging Proof-of-Stake solutions (PoS), which offer smart contract capabilities and interoperability.
The “long condor strategy with call options” might be more suitable for bullish traders who believe Ether price will rise to the upside, but don’t want to take on the liquidation risk imposed by futures.
Let’s have a closer look at this strategy.
For liquidation avoidance, options are safer than stocks
Options markets offer more flexibility for custom strategies, and there are two options available. The protective put option provides upside price protection for the buyer, while the call option offers the seller downside price protection. The derivatives can be sold by traders to create unlimited negative exposure. This is similar to futures contracts.
Returns on Ether Options Strategy Source: Deribit Position Builder
This long condor strategy was created for Dec. 31 expiry. It uses a slightly bullish range. You can use the same structure for different price ranges or periods, but you might need to adjust the contract quantities.
Ether traded at $3,300 at the time of pricing, but you can achieve a similar result starting from any price.
To create positive exposure at a higher price, the trader must first buy 0.50 contracts of $3,200 call option options. To limit gains exceeding $3,840, the trader must sell 0.42 Ethereum call option contracts. Another 0.70 call option contract should be sold to limit gains over $5,000.
The trader must have upside protection of at least $5,500. To do this, he or she should buy 0.64 call options contracts in the event that Ether prices skyrocket.
The 1.65:1 risk-reward ratio is moderately bullish
Although the strategy may sound complex, the margin required to trade Ether is 0.0314ETH. This is the maximum loss. If Ether trades between $5,390 and $3,420 (up 3.6%) the potential net profit is $0,014 ETH. (up 63.3%).
If there is enough liquidity, traders should know that they can also close their position before the Dec. 31 expiry. Maximum net gain is between $3,840 to $5,000 at 0.0513 Ethereum, which is 65% more than the possible loss.
This strategy offers a 90-day grace period before the expiry date. There is no liquidation risk, unlike futures trading.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.