Hafez Financial Services


How do professional traders use the options market to profit during periods of low volatility? (Part 2)

Digital Currencies

In the example below, several Bitcoin options contracts are set up with an expiration date of April 29, but traders can also use this strategy on the Ethereum options market or different timeframes. At the time of registration of these option contracts, the price of Bitcoin was $47,370; So the cost of adopting this strategy may be slightly different now, but its effectiveness remains the same.
In the image above, a trader using this strategy has bought 7.3 bitcoins with a call option contract of $46,000 to profit from the rise in the price of this cryptocurrency. At the same time, a call option contract worth 16 bitcoins is for sale at a strike price of $50,000.
This trader should buy the call option contract of 4.8 BTC at $52,000 and 3.9 BTC at $55,000 to reduce his risk at prices above the current price of Bitcoin.
The attractiveness of the Long Butterfly strategy is that by using it, traders are sure that their profit can be up to 6 times more than their maximum loss. In general, given that Bitcoin’s downside is limited, the risk-reward ratio of this strategy will be much better than leveraged futures.
Even if the price of Bitcoin remains stable, traders can still profit with this strategy. In this case, only 0.11 bitcoins are needed, which is the initial cost required to enter this strategy and its maximum loss.