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

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

Options strategies

Sign up on Deribit and receive 10% discount on fees for trading futures & options: https://www.deribit.com/reg-572.9826

Short straddle

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

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

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

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

Deribit 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.

Sign up on Deribit and receive 10% discount on fees for trading futures & options: https://www.deribit.com/reg-572.9826

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