The first part of this series covered how trading crypto Options can be a way to hedge your perpetual contract position. The second part of the series then moved onto a strategy diving deeper into using crypto options to generate yield with cash and carry trades.
This time around, we share another crypto options strategy – specifically, how you can trade crypto options to leverage market volatility and make profit.
Why Crypto Options are Useful During Market Volatility
TL;DR. One can buy a straddle when they expect a major market move but are unsure of whether it will move up or down.
Why would you want to do this? You wish to express your market opinion and make profit from trading the market move – independent of the direction of the move.
Let’s Look At An Example
Say you are currently holding BTC (Bitcoin) or USDC in your wallet.
The current BTC price is $45,000.
Based on market analysis, you expect that the BTC price will move sharply before your options’ expiry date.
Despite being unsure whether the BTC price will move up or down, you wish to profit from the coming market movements.
How Can Crypto Options Help?
A way to generate profit with drastic market movements (despite not having a directional view) is a “Straddle” strategy.
A straddle involves a long put and long call option.
In this scenario, you decide to buy a BTC Call Option and a BTC Put Option, both at a strike price of $45,000.
Each options contract costs a premium of $1,000, totalling your cost to $2,000.
Should the BTC price exceed $47,000, you make profit.
Should the BTC price drop below $43,000, you make profit.
Simply put, all you need is a significant price swing of BTC in either direction to generate a profit.
Like what you’ve read? We’ve got a range of educational resources on trading crypto Options as well as other derivatives, which you can find here.
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