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The front spread options technique is often used by professional traders to earn large profits without having to pay for their positions in advance.
With $6.1 billion in open interest, Bitcoin’s (BTC) forthcoming March 26 options expiry may be the highest ever. Pro investors will have already planned their plans for the next month in fewer than four days before the settlement deadline.
Given that the price of Bitcoin has already increased by 72.7 percent since February, most traders are wary of another rally occuring in the coming weeks. Nonetheless, the $55,000 support has held firm, indicating that the uptrend is still in place.
The futures contract premium and top traders’ long-to-short ratio indicate that whales and arbitrage desks are somewhat bullish. In comparison to mid-March, when the futures premium hit 35 percent annualised, the optimism seems to be more subdued.
Options strategies do not face liquidations ahead of expiry
Options strategies provide outstanding opportunities for traders with a fixed-range asset target. Traders can also exploit their positions by using leveraged futures contracts, but the stop loss reduces the trade’s profitability.
A investor, on the other hand, may develop a mildly bullish strategy by using several put (sell) options. Other than the margin conditions for a negative price swing, the front spread with puts allows for returns with little upfront expense. Depending on the investor’s preferences, the same pattern can be seen in both bullish and bearish situations.
It’s necessary to note that options have an expiry date; hence, the price rise must occur within the specified time frame.
The Bitcoin calendar options presented below are for the April 30 expiry date, although this technique can also be extended to Ether (ETH) options or a particular time period. Although the costs can vary, the overall performance should not be compromised.
The proposed marginally bullish approach entails purchasing 0.9 BTC worth of $76,000 put options while concurrently selling 2.05 BTC worth of $64,000 puts. To complete the transaction, 1.31 BTC worth of $48,000 put options should be purchased.
It is worth noting that these futures are traded in BTC on derivatives markets. As a result, the benefit and loss indicated above was in satoshis (1/100,000,000 BTC) at the expiry date.
While this put option allows the buyer the freedom to sell an item at a fixed price, the contract seller commits to buying it. As a consequence, placed options can be used in neutral-to-bullish tactics.
This front spread with puts could yield a $10,770 gain
According to the forecast, any outcome between $54,600 (down 4.3 percent from the actual $57,050) and $76,000 (up 33.2 percent) results in a nett benefit. A 10% price boost to $62,750, for example, results in a $9,350 nett income, or BTC 0.149. Meanwhile, the maximum loss for this technique is $7,600 if BTC trades at $48,000 (down 15.9 percent) on April 30.
This front spread of put options generates a possible $10,770 reward at $64,000, which is 2.85x the loss if BTC falls 10% to $51,350 on the expiry date.
For bullish traders wanting exposure to BTC’s price surge, the multiple options approach trade offers a stronger risk-reward ratio. Furthermore, apart from the 0.157 BTC margin provisions to compensate future losses, there is no upfront cost.