This bullish Ethereum options trade targets $3.1K ETH price with zero liquidation risk

  • February 6, 2022

The crypto market is starting to turn around, raising opportunities for risk averse traders to use the Long Condor options strategy to long ETH.

Ether price (ETH) spent the last two months stuck in a rut and even the most bullish trader will admit that the possibility of trading above $4,400 in the next couple of months is dim. 

Of course, cryptocurrency traders are notoriously optimistic and it is not unusual for them to expect another $4,870 all-time high, but this seems like an unrealistic outcome.

Despite the current bearish trend, there are still reasons to be moderately bullish for the next couple of months and using a “long condor with call options” strategy might yield a positive outcome.

Options strategies allows the investor to set upside limits

Options markets provide more flexibility to develop custom strategies and there are two instruments available. The call option gives the buyer upside price protection, and the protective put option does the opposite. Traders can also sell the derivatives to create unlimited negative exposure, similar to a futures contract.

Ether options strategy returns. Source: Deribit Position Builder

This long condor strategy has been set for the March 25 expiry and uses a slightly bullish range. The same structure can also be applied for bearish expectations, but this scenario assumes that most traders are looking for upside.

Ether was trading at $2,677 when the pricing took place, but a similar result can be achieved starting from any price level.

The first trade requires buying 5.14 ETH worth of $3,000 call options to create a positive exposure above this price level. Then, to limit gains above $3,500 the trader needs to sell 4.4 ETH contracts of the $3,500 call.

To complete the strategy, the trader needs to sell 6.65 ETH contracts of the $4,000 call, limiting the gains above such a price level. Lastly, a $4,500 upside protection call for 5.91 ETH is needed to limit the losses if Ether unexpectedly skyrockets.

The strategy aims for a healthy 3.2 to 1 profit to loss ratio

The strategy might sound complicated to execute, but the margin required is only 0.175 ETH, which is also the max loss. The potential net profit happens if Ether trades between $3,100 (up 15%) and $4,370 (up 63%).

Traders should remember that it is also possible to close the position ahead of the March 25 expiry. In this strategy, the maximum gain occurs between $3,500 and $4,000 at 0.56 Ether, which is more than three times higher than the potential loss.

Unlike futures trading, this strategy gives the holder peace of mind because there is no liquidation risk. It is also worth noting that most derivatives exchanges accept orders as low as 0.10 ETH contracts, meaning a trader could build the same strategy using a smaller amount.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.