Bitcoin hit a 2022 low of $17,580 on June 18, a bottom many traders hoped, but (BTC) has been unable to reach a daily close above $21,000 for the past six days. For this reason, traders are uneasy about the current price action, and the threat of loss of user funds and possible bankruptcy facing many CeFi and DeFi companies is weighing on sentiment.
The failure of venture capital Three Arrows Capital (3AC) to meet its financial obligations on June 14 and the pushback by Asian lending platform Babel Finance citing liquidity stress as the reason for suspending withdrawals are just two recent examples.
The news caught the attention of regulators, especially after crypto lending firm Celsius suspended user withdrawals on June 12. Securities regulators from five U.S. states reportedly launched an investigation into the crypto lending platform on June 16.
There’s no way to know when sentiment will change and spark a Bitcoin bull run, but for traders who think BTC will hit $28,000 in August, there is a low-risk options strategy that can generate decent returns with limited risk.
‘Iron Condor’ offers returns in a specific price range
Trading with ten times leverage through futures contracts can sometimes pay off. However, most traders are looking for ways to maximize gains while limiting losses. For example, the skewed “Iron Condor” maximizes profits close to $28,000 by the end of August, but limits losses if it expires below $22,000.
A call option gives its holder the right to buy an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee called a premium.
At the same time, put options give their holders the privilege to sell the asset at a fixed price in the future, a downside protection strategy. On the other hand, selling the instrument (put option) provides the risk of price appreciation.
Iron Condor consists of selling call and put options at the same expiration price and date. The example above was set up using the August 26 contract, but it can be adapted for other timeframes.
Target profit area of $23,850 to $35,250
To start the trade, investors would need to short 3.4 contracts of the $26,000 call and 3.5 contracts of the $26,000 put. The buyer then needs to repeat the process for the $30,000 option using the same expiration month.
7.9 contracts of the $23,000 puts also need to be bought to prevent an eventual decline. Buy another 3.3 call option contracts at $38,000 to limit losses above that level.
The strategy will yield a net gain if Bitcoin trades between $23,850 and $35,250 on Aug. 26. Net profits peaked at 0.63 BTC (current price $13,230) between $26,000 and $30,000, but they remain above 0.28 BTC (current price $5,880) at $24,750 and $32,700 if Bitcoin trades between.
The investment required to start this strategy is the maximum loss, so 0.28 BTC or $5,880, which would happen if Bitcoin traded below $23,000 or above $38,000 on August 26. The benefit of this trade is that it covers a reasonable target area while offering a 125% return with a potential loss.
The views and opinions expressed here are those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading action involves risk. You should do your own research when making a decision.