Bitcoin (BTC) investors looking to earn additional income on top of their spot market holdings should consider setting up a “covered strangle” option strategy, says a company with a perfect track record of predicting market trends. research firm 10X said on Monday.
A “covered strangle” strategy involves holding an underlying asset in the spot market while simultaneously executing an out-of-the-money (OTM) call option at a level above the market price of the underlying asset (referred to as a strike in options terminology). It includes selling and selling. OTM is set at a strike below the spot market price of the underlying asset.
The premium received by selling/shorting a call option or protecting a counterparty from price increases and selling a put or insurance against a downtrend represents additional yield.
10x sold a $100,000 strike call and a $50,000 strike put (both expiring December 2024) 50% above BTC's current market price while holding Bitcoin in the spot market I am proposing to do so.
“Our favorite strategy is to buy spot Bitcoin, sell 100,000 exercise calls, and sell 50,000 exercise puts for expiration in December 2024. Selling the calls yields 11% , and selling a put could yield a yield of 6%,” said Markus Thielen, founder of 10x Research, which detailed the proposal in a client note on Monday. Ta.
“Thus, this strategy could provide a 17% downside buffer or a yield of 17% or more, depending on where BTC ends in December, plus capture all the upside (or downside) for Bitcoin. ” Thielen added.
This strategy is preferred when the market outlook is bullish, but the uptrend is expected to develop slowly, keeping investors' expectations of implied volatility and price movements low. In this situation, options, especially his OTM call and put options, drain value faster as they approach expiry, resulting in a profit for the seller.
Although this strategy is attractive, it is currently risk-free and requires a high risk tolerance. That's because the risk is leveraged below the level at which the put option is sold ($50,000 in this case).
“When the strike price is low, both long stocks and short puts incur losses, resulting in a loss rate twice that of a covered call position. [buy spot = sell OTM call] Alone,” Fidelity said in a description of “Covered Strangler.”
In other words, the 10x strategy is for those who believe that the Bitcoin bull market will move slowly and that even if there is a correction, the price will not fall below $50,000. At the time of writing, Bitcoin was trading at $67,170, representing an increase of 58% since the beginning of the year, according to data from CoinDesk.
Several analysts, including Thielen and Arthur Hayes, former chief executive of crypto exchange BitMEX, predict a modest rise.
