If you’re predicting a price movement in the price of cryptocurrencies like Bitcoin or Ethereum, but are uncertain of the direction of such price movement – there are many ways to use crypto options and profit from this price movement.
However, most of these strategies – like the iron candor, or the iron butterfly, require you to purchase calls and puts at different strike prices, at different expirations at a particular time, making this a complex ordeal.
However, with the straddle option strategy – an effective, albeit simple method where you buy both puts and calls at the same strike price – that’s not the case anymore. So what’s the Straddle Crypto Options strategy? How to best put it to use to gain profits? In this detailed guide, we will take you through everything you need to know about Straddle.
What is the Straddle Crypto Options Strategy?
When you purchase both put and call options at the same strike price and expiration date, you’ve successfully deployed the straddle options strategy. The Straddle is not just limited to options trading. In fact, The Straddle is a much broader concept in the world of finance, where it’s defined as two separate transactions involving the same asset, with one transaction aimed to offset the other.
Usually, the Straddle Options Strategy is deployed when traders are anticipating a significant move in the price of the underlying asset, but are uncertain about the direction of the price change.
While, at a cursory glance, it may seem to be a safe bet regardless of market movement, do note that it is important that some significant movement happens in the market, or else you would end up losing the premium you’ve paid for no reason.
Should there not be any movement in the price of the underlying asset, the time value of the options would start reducing, till they expire worthless, eventually. It is only profitable if either the rise in price or the fall from the strike price is at least more than the total premium paid.
Creating A Straddle In Crypto Options
Say, you’re in August 2022. The Ethereum PoS merge is upcoming, but there is also an expected opposition coming in from a group of miners. A potential fork is on the cards, and you know for a fact that there is going to be significant volatility, but you can’t possibly predict the direction in which Ethereum’s price will move.
Now is the perfect time to enter into a straddle. You buy two at-the-money options, with one-month expiry – one put and one call (you can multiply this however many times your risk appetite allows for you too).
Since the Ethereum PoS merge happened successfully, your at-the-money call option would be successful in bringing in the profits, enabling you to hedge your bets and earn profits at the same time.
Profitability in Straddle
But how do I know if a particular straddle trade would be profitable?
Say, for the sake of simplicity, the current price of Bitcoin is $100. The current premium for an at-the-money put option, with one-month expiry, is $4.80, and the cost of an at-the-money call option is $5.20.
Together, the cost of buying both options is $10, which is 10% of the Bitcoin option’s current strike price. In order for you to profit from this movement, all the market has to achieve is a price variance of 10% within the next month, for you to profit off of this trade.
In other words, should you predict at least a 10% price movement within the next month, going for a Bitcoin Option Straddle strategy is the perfect choice for you.
If you’re anticipating big news in the crypto world, be it an impending fork, regulations, sanctions, or even adoption around the corner – volatility is the one thing that the crypto market is not short of. Smart traders can use this inherent volatility to their advantage by going for the Straddle Options strategy.
Hope this article gives you everything you need to know about this simple crypto options trading strategy. Should you have any queries, or would you want us to cover certain topics, don’t hesitate to reach out to Delta Exchange via our socials!
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