On October 1, the crypto market saw a 9.5% pump that pushed Bitcoin (BTC) and Ether (ETH) to 12-day highs. Several reasons were cited, including the US consumer price index, dwindling supply on the stock exchanges, and the formation of a bullish “cup and handle” pattern.
Analysts are unlikely to find a precise explanation for this sudden move, other than investors regaining confidence after the September 19 decline attributed to fears of a collapse in China’s real estate giant Evergrande.
The Ethereum network is facing some criticism as the transaction fees for NFT and DeFi sales are both $ 20 or more. Cross-chain bridges between Ethereum and Proof-of-Stake (PoS) networks have partially resolved this problem, and the launch of the umbrella network’s Oracle service on Friday shows that interoperability is advancing rapidly.
It should also be noted that the stricter rules announced by China last week have had a positive impact 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 coins leaked afterwards. At the same time, this movement has increased on Uniswap and the decentralized derivatives exchange dYdX.
Hence, there is still reason for investors to be optimistic about Ethereum so far. However, limitations due to Ethereum’s Layer 1 scaling have helped some of its competitors make significant gains in recent months.
ETH Price Chart vs AVAX, SOL, ATOM | Source: TradingView
Note that Ethers positive performance of 58% over three months is significantly lower than that of emerging proof-of-stake (PoS) solutions like SOL, AVAX and ATOM.
For traders who believe that the price of Ether will rise, but do not want to take the risk of liquidation when misusing futures contracts, the “Long Condor with Call Option” strategy can deliver better results.
Let’s take a closer look at this strategy.
Options are a safer choice to avoid liquidation
The options market offers more flexibility in developing custom strategies with two tools available. Calls offer buyers protection in the event of rising prices; put options have the opposite effect. Traders can also sell derivatives for unlimited negative spreads, similar to futures.
Source: Deribit Position Builder
This long condor strategy was introduced with an expiration date of December 31st and uses a slightly bullish range. The same structure can be applied to other time periods or price ranges, although the contract numbers may need to be adjusted.
Ether was trading at $ 3,300 upon position setting, but a similar result could be achieved from any price.
The first trade required buying 0.5 call options at $ 3,200 to create a positive spread above that price. Then, to cap profits above $ 3,840, traders must sell 0.42 ETH call options. To further limit profits above $ 5,000, traders should sell another 0.7 call options.
To complete the strategy, traders need to protect profits over $ 5,500 by buying 0.64 call options when the ether price rises.
Risk ratio – reward is 1.65: 1 if ETH increases moderately
This strategy sounds complicated to implement, but the deposit amount is only 0.0314 ETH, which is also the maximum loss. Traders can see potential net profit if ether trades between $ 3,420 (up 3.6%) and $ 5,390 (up 63.3%).
One important note is that a trader can close a position before the December 31st expiration if there is sufficient liquidity. The trader can get the maximum net profit if ETH trades between $ 3,840 and $ 5,000, which is 0.0513 ETH, 65% higher than the potential loss.
With more than 90 days to expiry, this strategy gives the holders security as there is no liquidation risk as with futures trading.
You can see the ETH price here.
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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
According to Cointelegraph