On October 1, the crypto market saw a 9.5% pump that drove Bitcoin (BTC) and Ether (ETH) to 12-day highs. Several causes are attributed to price fluctuations, including the US consumer price index, dwindling supply on the stock exchanges and a bullish “cup and handle” continuation of the chart.
Traders are unlikely to find an explanation for the sudden move other than that after the decline on Jan.
The Ethereum network has been criticized for having transaction costs of $ 20 or more caused by distributed token sales (NFT) and decentralized funding (DeFi). Cross-chain bridges connecting Ethereum to the Proof-of-Stake (PoS) network have partially solved this problem, and the launch of the umbrella network’s Oracle service on Friday shows how fast interoperability is advancing.
It should also be noted that China’s even stricter rules announced last week have had a positive effect on trading volumes on decentralized exchanges (DEXs). Centralized cryptocurrency exchanges, including Huobi and Binance, announced the cessation of services to Chinese residents, and a significant amount of money flowed out afterwards. At the same time, this has increased the movement on Uniswap and the decentralized futures exchange dYdX.
Despite all this volatility, there are reasons for the year-end rally among investors for Ether. At the same time, limitations due to Ethereum’s Layer 1 scaling have also caused some of its competitors to post significant gains in recent months.
Note that the positive performance of Ether is 58% in three months, significantly lower than that of emerging proof-of-stake (PoS) solutions, which offer intelligent contract functionality and interoperability.
For optimistic traders who believe that the price of Ether will rise but do not want to take the risk of liquidation through futures contracts, the “Long Condor with Call Option” strategy may produce the best results.
Let’s take a closer look at the strategy.
Options are a safer choice to avoid liquidation
The options market offers more flexibility in developing custom strategies and two tools are available. Calls offer buyers upside protection, and protective puts do the opposite. Traders can also sell derivatives for unlimited negative spreads, similar to what happens with futures contracts.
This long-term pricing strategy has an expiration date of December 31st and uses a slightly bullish range. The same basic structure can also be applied to other time periods or price ranges, whereby the contract numbers may have to be adapted.
Ether was trading at $ 3,300 when the price took place, but a similar result could be achieved at any price.
The first trade required the purchase of 0.50 contracts of the $ 3,200 call option to create a positive spread above that price. Then, to cap profits above $ 3,840, a trader must sell 0.42 ETH call options. To further limit profits above $ 5,000, another 0.70 call option should be sold.
To complete the strategy, a trader must protect profits over $ 5,500 by buying 0.64 call options contracts when the ether price rises.
The 1.65 to 1 risk / reward ratio is a moderate increase
This strategy sounds complicated to implement, but the margin required is only 0.0314 ETH which is also the maximum loss. A potential net profit would arise if ether trades between $ 3,420 (up 3.6%) and $ 5,390 (up 63.3%).
Traders should keep in mind that if there is sufficient liquidity, it is also possible to close a position before the end of December 31st. The maximum net profit is between $ 3,840 and $ 5,000 at 0.0513 ETH, which is 65% higher than the potential loss.
With more than 90 days to expiration, this strategy gives the owners security, as there is no liquidation risk as with futures trading.
The views and opinions expressed here are those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.