Take advantage of bitcoin and ethereum volatility at Deribit with options trading

This article is obsolete

In the last article, I covered the basics by betting with buying “puts” and “calls” with options trading. We can also short “puts” and short “calls.”

It’s possible with options to trade without a bias. In this scenario, we aren’t looking to bullish or bearish. We want to profit off volatility. We don’t care or don’t want to care if the market is bullish or bearish. We can profit off either direction.

Part 1

If you don’t know anything about options, please read my previous medium article about trading options on Deribit and FTX.

Options strategies

Option strategies are often mixed with buying/selling one or more options. These strategies can allow traders to profit from movements based on market sentiment. Bullish, bearish, or neutral. These strategies allow you for some advanced but useful positions and allow you to take advantage of a sideways market. You can trade make a profit without having to choose a market direction.

Short straddle

A short straddle is where we sell a “call” and sell a “put” with the same “strike price.” We do this when we expect not much volatility at the option expiration. You can use a straddle when we expect minimal movement. You want the price of bitcoin or ethereum to settle close as possible to the “strike price.”

At the of writing, this article is February 27, 2020, and bitcoin price is around $8675.

Let’s say we expect not much movement on bitcoin before March 6. We expect the market to go sideways. Now what we can do, for example, is sell a “call” and sell a “put.” (In the last article, I mentioned not to sell “calls” and “puts” unless you want to close/reduce your option trade, but in this scenario, we do want to sell without owning any previous “calls” or “puts.)

Press sell
Press sell

Now let’s look at the effect of this strategy. Again we can use https://pb.deribit.com/

Short straddle

0.00390At the price close to $9000 at expiry, we can make $1471. At $8322, we make only $13.52, and at $9801 we make only $9. The closer the price settles to the “strike price,” the more profit we make. This is how we can make a profit on a sideways/ranging market with trading bitcoin and ethereum options on Deribit.

The premium you pay is for 2 “calls” ($421) and 2 “puts” ($1017). However, by selling/shorting “calls” and “puts,” your max loss can be higher than the premium you pay. If price settles at $7500, you lose $1743, and if the price would settle at $11.5k, you lose $2188.

Long straddle

A long straddle is where we buy a “call” and buy a “put.” Our goal is to make a profit if bitcoin or ethereum moves either direction. We buy/long, so our max loss is the premium we pay.

Now, let’s buy a “put” and a “call” with a strike price of 9000, which expires March 27.

For 2 puts we pay a premium of $1185.77, and for 2 calls we pay a premium of $1166.24

Effect

If BTC price settles around $9000, we lose $2363. If the price moves below $7930, we start to make a profit. If the price moves above $1038, we start to make a profit.

If the price would go to $13000, we make $4.6k, and if the price would go to $6k, we make $4.4k.

The premium you pay is incredibly important. The higher the premium, the more volatility you need to be profitable, and the higher your max loss is.

Update

It’s March 21 and the price of BTC is 6.2k (we went down even more) so this option trade would have made you $4k+

Short strangle

The short strangle option strategy is a limited profit, unlimited risk strategy that can be played when an options trader thinks that the underlying price will experience little volatility in the short term.

We can do a short strangle. Right now, the bitcoin price is $6165.

Let’s short a “call” with a strike price 6000 and short a “put” with a strike price of 5875 for March 22. The premium for the “call” is $216.53 and for that “put” our premium $26.77

Effect

If BTC price is 5950 at expiration, we make $255, but below the price of 5.6k we start to make a loss a little bit above 6.5k.

Long strangle

The long strangle also known as buy strangle or simply “strangle.” It’s a neutral strategy in options trading. For this strategy, you’re anticipating volatility.

Let’s buy a “put” with a strike price of 6000 with a premium/cost of $839 and buy a “call” with a strike price of 6500 with a cost/premium of $785

Effect

We start to make a profit when the price either moves below $4.7k or above $8.8k

Our max loss would be when the price of bitcoin stays at $6.6k, which would result in a $1600 loss.

However, if the price at expiration would be at $3k, we would make $2200. If the price would go to $16k, we would make $5.7k.

Tip

You can use sub-accounts on Deribit to limit your losses and don’t face surprises, for example, when executing a short strangle and face unlimited risk.

Deribit KYC?

Deribit requires KYC in some form. On Deribit, there is level 0 and level 1 KYC.

For level 0, you can withdraw up to 1 BTC per 24 hours, and for level 1, it’s unlimited.

For level 1, you have to show proof. For level 0, you don’t have to show proof. You don’t have to upload your government ID, so there’s no way for them to check.

More medium articles?

If you are looking for more medium articles like this written by me. You can find them here: https://medium.com/@romanornr/

also my twitter: https://twitter.com/RNR_0

But here’s a list anyways:

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store