Sirwin
Sirwin

A profitable option trade strategy for Bitcoin

By Jumble | Jumble | 12 Apr 2020


Think that Bitcoin (BTC) will stay within a specified price range? Then an “iron condor” option trade strategy can be profitable. An iron condor option trade is profitable when price stays between an upper limit and a lower limit.

An iron condor uses two vertical spreads with the same expiration date. A put spread is used below the market price and a call spread is used above the market price. The procedure is:

  1. sell a put with a strike price that is close to but below the current BTC price
  2. buy a put with a strike price that is further-out-of-the-money (OTM)
  3. sell a call with a strike price that is close but above to the current BTC
  4. buy a call with a strike price that is further OTM.

For more information about an iron condor option trade, click here.

Example of an iron condor for BTC

Here is the option “ladder” for BTC for Sunday, April 12th, 2020. This price list from OKEx. The price list for the call options are on the left and the price list for the put options are on the right.

The expiration date for these options is Friday, April 17th, 2020. At the time the prices for this option were available, the BTC price was equal to $68848.03.

The options that are purchased are shown in a blue box and the options that are sold are shown in a red box.

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In this example, the “Mark Price” was used. The procedure given above is redone as follows:

  1. sell a put with a strike price of $5750 and receive a credit equal to 0.0028 BTC
  2. buy a put with a strike price of $5500 and pay a premium equal to 0.0022 BTC
  3. sell a call with a strike price of $7000 and receive a credit equal to 0.0182 BTC
  4. buy a call with a strike price of $7250 and pay a premium equal to 0.0084 BTC.

The conditions for maximum profit and loss

For an iron condor the maximum profit and maximum loss are know when the trade is made. These occur at the expiration date. For this trade, the options expire at the close of trade on Friday, April 17th, 2020. The conditions for the maximum profit or loss are:

  • the maximum profit is earned if the BTC price is greater than $5750 but less than $7000
  • the maximum loss occurs if BTC is higher than $7250 or lower than $5500.

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The maximum profit is sum of the credits minus the paid premiums. The maximum loss is the difference in price between the long call (or put) strike price and the short call (or put) strike price minus the credit received. These maximums are calculated below:

  • maximum profit: +0.0028 BTC – 0.0022 BTC + 0.0128 BTC - 0.0084 BTC = 0.0104 BTC x $6848.03 = -$71.22
  • maximum loss: $7250 - $7000 – 0.0104 BTC = $250 – 0.0104 BTC x $6848.03 = -$178.78

It is necessary to include the trading commissions to calculate the total profit or loss.

Good luck with iron condor option trading.

Note: This post is for information purposes only.  It is not intended to be investment advice.  Seek a duly licensed professional for investment advice.

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Jumble
Jumble

Technical and marketing content writer. And a cryptocurrency fanatic.


Jumble
Jumble

Thoughts about cryptocurrencies

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