A detailed explanation of a BTC call option strategy with no liquidation risk

Bitcoin forward options and longs are still making waves with their extremely bullish bets, but they also have to admit that the chances of Bitcoin exceeding $60,000 in the coming months are slim.

Many traders have added leveraged long positions through futures contracts in pursuit of the elusive all-time highs, but this appears to be an unrealistic outcome.

According to popular on-chain analyst Willy Woo, exchange outflows and accumulation by Bitcoin miners and whales suggest that Bitcoin price will reach the $50,000 to $65,000 range in the coming months.

Even SEC Chairman Gary Gensler believes that cryptocurrencies are not going away and could play a major role in the future of finance. Therefore, a moderate bullish outlook could lead to positive results in the coming months.

For bullish traders who believe that Bitcoin price will break out to the upside but are unwilling to face the liquidation risk that comes with futures contracts, the “Long Condor with Calls” strategy may produce more desirable results.

Options are a safer bet to avoid liquidation

The options market offers more flexibility for developing custom strategies, with two instruments to choose from. Call options give the buyer protection against upside price movements, while protective put options do the opposite. Traders can also sell derivatives to create unlimited negative exposure, similar to futures contracts.

Bitcoin options strategy returns Source: Deribit Position Builder

This buy condor spread strategy uses a slightly bullish range with an expiration date of September 21. The same basic structure can be applied to a bearish outlook, but we will assume that most traders are looking for upside.

At the time of pricing, Bitcoin was trading at $37,830, but similar results could be achieved at any price level.

The first trade would require buying a 1.20 Bitcoin call option at $42,000 to create positive exposure above this price level. Then, to limit gains above $46,000, the trader would need to sell 1.1 Bitcoin call options at $46,000.

To complete this strategy, the trader would need to sell 1.3 Bitcoin call options contracts worth $56,000 to limit gains above this price level. Then 1.22 Bitcoin call options worth $60,000 would be needed to provide upside protection to limit losses in the event of an unexpected surge in Bitcoin prices.

In this case, the gains far outweighed the losses.

This strategy sounds complicated to execute, but the margin required is only 0.0265 BTC, which is also the maximum loss. A net profit would be generated if Bitcoin traded between $42,950 (up 13.5%) and $59,450 (up 57%).

Traders should keep in mind that it is also possible to close out the position before the September 21 expiration date if there is enough liquidity. The maximum gain would be 0.0775 BTC, worth between $46,000 and $56,000, almost three times the potential loss.

With more than 50 days left until expiration, this strategy gives holders peace of mind as there is no liquidation risk like in futures trading.

Another benefit is that most derivatives exchanges accept orders as small as 0.10 Bitcoin contracts, which means traders can build the same strategy with a smaller amount.