Here’s how Bitcoin pro traders plan to profit from BTC’s eventual pop above $20K

October 21, 2022 Coin Telegraph

<div>Here's how Bitcoin pro traders plan to profit from BTC’s eventual pop above K</div>

Traders who believe BTC will break above $20,000 could use this low-risk options strategy to cast a long bullish bet.

Bitcoin (BTC) entered an ascending channel in mid-September and has continued to trade sideways activity near $19,500. Due to the bullish nature of the technical formation and a drop in the sell pressure from troubled miners, analysts expect a price increase over the next couple of months.

*Bitcoin/USD price at FTX. Source: TradingView*

Independent analyst @el_crypto_prof noted that BTC's price formed a "1-2-3 Reversal-Pattern" on a daily time frame, hinting that $20,000 could flip to support soon.

$BTC #Bitcoin

Yes, the price action of $BTC is really boring, isn't it?

But if you look closely, a textbook "1-2-3 Reversal-Pattern" has formed in the last few days, which should finally send Bitcoin above 20k soon. pic.twitter.com/29Wa64XKQa
— ⓗ (@el_crypto_prof) October 20, 2022

Fundamental analysts are also attributing the sideways action to troubled Bitcoin-listed mining companies. For example, Stronghold Digital Mining announced a debt restructuring on Aug. 16 that included the return of 26,000 miners.

One public miner, Core Scientific, sold 12,000 BTC between May and July, while publicly traded mining companies sold 200% of their Bitcoin production. Bitcoin enthusiast @StoneysGhoster adds that excessive leverage caused the forced selling, not the mining activity, itself.

Bitcoin is grinding sideways around 20k because public miners are in trouble and have to sell all their bitcoin.

Turns out taking out a bunch of debt was a bad idea.
— StoneysGhost (@StoneysGhoster) October 8, 2022

Regardless of the base case for Bitcoin's price recovery above $20,000, investors fear the impact of an eventual stock market crash as central banks continue to increase interest rates to curb inflation.

Considering the persistent uncertainty caused by macroeconomic factors, a strategy that yields gains in the $21,000 to $28,000 range while limiting losses below $19,000 seems the most prudent. In that sense, options markets provide more flexibility to develop custom strategies.

It starts with selling put options for upside exposure

To maximize returns, investors could consider the Iron Condor options strategy that has been slightly skewed for a bullish outcome. Although the put option provides its buyer the privilege to sell an asset at a fixed price in the future — selling this instrument offers exposure to the price upside.

*Bitcoin options Iron condor skewed strategy returns. Source: Deribit Position Builder*

The above example has been set using the BTC Nov. 25 options at Deribit. To initiate the trade, the buyer should short (sell) 1 contract of the $23,000 call and put options. Then, the buyer needs to repeat the procedure for the $25,000 options.

To protect against extreme price movements, a put option at $19,000 has been used. Consequently, 2.6 contracts will be necessary, depending on the price paid for the remaining contracts.

Lastly, if Bitcoin's price rips above $32,000, the buyer will need to acquire 1.6 call option contracts to limit the strategy's potential loss.

The max profit is 2x larger than the potential loss

Even though the number of contracts in the above example aims for a maximum BTC 0.30 ($5,700) gain and a potential BTC 0.135 ($2,560) loss, most derivatives exchanges accept orders as low as 0.10 contracts. As a result, the strategy yields a net profit if Bitcoin trades between $20,000 and $29,600 (+56%) on Nov. 25.

The max net gain occurs between $23,000 and $25,000, yielding a return more than two times higher than the potential loss. Furthermore, with 35 days until the expiry date, this strategy gives the holder peace of mind —unlike futures trading, which comes with an inherent liquidation risk.

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

Here’s why Bitcoin price could tap $21K before Friday’s $510M BTC options expiry

October 18, 2022 Coin Telegraph

Here’s why Bitcoin price could tap K before Friday’s 0M BTC options expiry

BTC price

Bears are currently better positioned for this week’s $510 million BTC options expiry, but their overconfidence could give bulls a chance to flip the table.

Bitcoin (BTC) has been trying to break above the $20,500 resistance for the past 35 days, with the latest failed attempt on Oct. 6. Meanwhile, bears have displayed strength on four different occasions after BTC tested levels below $18,500 during that period.

*Bitcoin/USD price index, 12-hour chart. Source: TradingView*

Investors are still unsure whether $18,200 was really the bottom because the support level weakens each time it is tested. That is why it’s important for bulls to keep the momentum during this week’s $510 million options expiry.

The Oct. 21 options expiry is especially relevant because Bitcoin bears can profit $80 million by suppressing BTC below $19,000.

Bears placed their bets at $19,000 and lower

The open interest for the Oct. 21 options expiry is $510 million, but the actual figure will be lower since bears were overly-optimistic. These traders completely missed the mark placing bearish bets at $17,500 and lower after BTC dumped below $19,000 on Oct. 13.

*Bitcoin options aggregate open interest for Oct. 21. Source: CoinGlass*

The 0.77 call-to-put ratio shows the dominance of the $290 million put (sell) open interest against the $220 million call (buy) options. Nevertheless, as Bitcoin stands near $19,000, most bearish bets will likely become worthless.

If Bitcoin's price remains above $19,000 at 8:00 am UTC on Oct. 21, only 4% of these put (sell) options will be available. This difference happens because a right to sell Bitcoin at $18,000 or $19,000 is worthless if BTC trades above that level on expiry.

Bulls can still flip the table and secure a $150 million profit

Below are the four most likely scenarios based on the current price action. The number of Bitcoin options contracts available on Oct. 21 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $18,000 and $19,000: 0 calls vs. 4,300 puts. The net result favors the put (bear) instruments by $80 million.
Between $19,000 and $20,000: 1,500 calls vs. 1,100 puts. The net result is balanced between calls and puts.
Between $20,000 and $21,000: 4,300 calls vs. 100 puts. The net result favors the call (bull) instruments by $85 million.
Between $21,000 and $22,000: 7,200 calls vs. 0 puts. The net result favors the call (bull) instruments by $150 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there's no easy way to estimate this effect.

A few more dips below $19,000 would not be surprising

Bitcoin bears need to push the price below $19,000 to secure an $80 million profit. On the other hand, the bulls' best-case scenario requires a pump above $21,000 to flip the tables and score a $150 million gain.

Bitcoin bulls had $80 million in leveraged long positions liquidated on Oct. 12 and Oct. 13, so they should have less margin than is required to drive the price higher. Consequently, bears have higher odds of pinning BTC below $19,000 ahead of the Oct. 21 weekly options expiry.

2 key Ethereum price indicators point to traders opening long positions

October 17, 2022 Coin Telegraph

bnb

Ether price is still at risk of falling below $1,000, but data points to traders opening fresh long positions.

Ether (ETH) price has been unable to close above $1,400 for the past 29 days and it has been trading in a relatively tight $150 range. At the moment, the $1,250 support and the $1,400 resistance seem difficult to break, but two months ago, Ether was trading at $2,000. The current price range for Ether simply reflects how volatile cryptocurrencies can be.

From one side, investors are calm as Ether trades 50% above the $880 intraday low on June 18. However, the price is still down 65% year-to-date despite the most exciting upgrade in the network's sev-year history.

More importantly, Ethereum's biggest rival, BNB Chain , suffered a cross-chain security exploit on Oct. 6. The $568 million exploit caused BNB Chain to temporarily suspend all transactions on the network, which holds $5.4 billion in smart contracts deposits.

Ether underperformed competing smart contracts like BNB, Cardano (ADA), and Solana (SOL) by 14% since September, even though its TVL in ETH terms increased by 9% during the period. This suggests that the Ethereum network's issues, such as the $3 average transaction fees, weighed on the ETH price.

*Ether vs. MATIC, SOL, BNB: Source: TradingView*

Traders should look at Ether's derivatives markets data to understand how whales and market makers are positioned.

Options traders remain moderately risk-averse

The 25% delta skew is a telling sign whenever professional traders overcharge for upside or downside protection. For example, if traders expected an Ether price crash, the options markets skew indicator would move above 12%. On the other hand, generalized excitement reflects a negative 12% skew.

*Ether 60-day options 25% delta skew: Source: Laevitas.ch*

In layperson's terms, the higher the index, the less inclined traders are to offer downside risk protection. The indicator has been signaling fear since Sept. 19, when it last held a value below 10%. That day marked the temporary bottom of a 28% weekly correction, as the $1,250 support strengthened after such a test.

Long-to-short data show traders adding longs

The top traders' long-to-short net ratio excludes externalities that might have solely impacted the options markets. By aggregating the positions on the spot, perpetual and quarterly futures contracts, one can better understand whether professional traders are leaning bullish or bearish.

There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes instead of absolute figures.

*Exchanges' top traders Ether long-to-short ratio. Source: Coinglass*

Binance displayed a modest increase in its long-to-short ratio between Oct. 13 and 17, as the indicator moved from 1.04 to 1.07 in those four days. Thus, those traders slightly increased their bullish bets.

Huobi data shows a stable pattern as the long-to-short indicator stayed near 0.98 the whole time. Lastly, at OKX exchange, the metric plunged to 0.72 on Oct. 13, largely favoring shorts only to rebound to the current 1.00.

On average, according to the long-to-short indicator, the top traders from those three exchanges have been increasing long positions since the $1,200 support test on Oct. 13.

Skew and leverage are critical to sustaining the $1,250 support

There was no significant improvement in pro traders' derivatives positions despite Ether gaining 12% since the Oct. 13 crash down to $1,185. Moreover, options traders fear that a move below $1,250 remains feasible, considering the skew indicator remains above the 10% threshold.

If these whales and market makers had firm convictions of a sharp price correction, that would have been reflected in the exchange top traders' long-to-short ratio.

Investors should closely monitor both metrics. The 25% delta skew should remain at 18%, and the long-to-short ratio above 0.80 to sustain the $1,250 support strength. These indicators are a telling sign of whether the bearish sentiment from top traders is gaining momentum.

Bankman-Fried ‘100%’ supports knowledge tests for retail derivatives traders

October 17, 2022 Coin Telegraph

CFTC

The FTX founder said a knowledge test for derivative retail customers “could make sense” but it doesn’t need to be specific to crypto.

The founder and CEO of cryptocurrency exchange FTX, Sam Bankman-Fried has backed the idea of knowledge tests and disclosures to protect retail investors but said it shouldn’t just be crypto-specific.

Bankman-Fried tweeted his thoughts in response to an idea floated by the Commodities Future Trading Commission (CFTC) commissioner Christy Goldsmith Romero on Oct. 15, saying the establishment of a “household retail investor” category for derivatives trading could give greater consumer protections.

Romero said due to crypto, more retail investors are entering the derivatives markets and called for the CFTC to separate these investors from professional and high-net-worth individuals and have “disclosures written in a way that regular people understand or could be used when weighing rules on the use of leverage.”

Derivatives trading is when traders speculate on the future price of an asset, such as stock, commodities, fiat currency, or cryptocurrency through the buying and selling of derivative contracts, which can involve leverage.

The FTX founder said he “100%” agrees with mandating disclosures and knowledge tests for all Future Commissions Merchants (FCMs) and Designated Contract Markets (DCMs) who face retail traders, adding it “could make sense.”

He added however that it doesn’t “necessarily make sense” for the disclosures and tests to be specific to cryptocurrencies, suggesting these should apply to all derivative products.

DCMs are CFTC-regulated derivate exchanges on which products such as options or futures are offered which can only be accessed through an FCM, which accepts or solicits buy and sell orders on futures or futures options contracts from customers.

Bankman-Fried’s comments come as FTX.US, FTX’s United States-based entity, looks to launch cryptocurrency derivatives trading and the exchange has already created a knowledge test that could be used for its platform according to Bankman-Fried.

The CFTC is ramping up its efforts to become the regulator of choice for the U.S. crypto market as calls for regulatory clarity become more persistent.

On Sept. 27 CFTC Commissioner Caroline Pham said the regulator should create a crypto retail investor-focused office to expand its consumer protections, the proposed office would be modeled off a similar office at the Security and Exchange Commission (SEC).

Crypto markets to see ‘explosive volatility’ soon: Arcane Research

October 13, 2022 Coin Telegraph

Coin Telegraph

Ballooning leverage and reduced volatility on crypto markets create a situation where explosive volatility is very possible in the short-to-medium term.

After weeks of reduced volatility, cryptocurrencies like Bitcoin (BTC) are likely to see sharp price changes in the short to medium term, according to one analyst.

The current situation in cryptocurrency markets could potentially generate “explosive volatility” due to massive leverage and recent low volatility, Arcane Research analyst Vetle Lunde suggested.

Lunde pointed to “leverage bonanza,” or leverage going parabolic in the crypto derivatives market, while Bitcoin has continued to hover around $19,000 over the past few weeks.

In crypto trading, leverage refers to using borrowed funds to make trades in order to profit bigger through contracts like perpetual swaps. According to Arcane, notional open interest (OI) in Bitcoin perpetual contracts was nearing 500,000 BTC as of Oct. 11, which marked parabolic growth in leverage amid Bitcoin’s flattening volatility.

*Bitcoin perpetual swaps’ open interest by Arcane Research. Source: Laevitas*

While forecasting potential bursts of volatility in the short or medium term, Lunde avoided predicting exact market moves, stating:

“I view the current open interest as well blown above any levels that may be assessed as sustainable, opaqueness from market signals restricts me from having any directional view on the winddown of said leverage.”

The analyst also stressed that the current market could benefit sophisticated traders that are familiar with straddle strategy, which involves simultaneously buying both a put option and a call option with the same price and the same expiration date.

In the medium term, Lunde pointed to the growing trend in OI in crypto derivatives which could lead to a “very volatile” breakout. As previously reported, Bitcoin futures OI hit an all-time high, with BTC-denominated futures OI hitting 660,000 BTC on Oct. 12.

Lunde also mentioned a few potent triggers in the medium term for crypto, including potential BTC purchases by Michael Saylor’s MicroStrategy in November. “If the usual MicroStrategy riddance repeats, expect small rallies and brief hardcore sell-offs as MicroStrategy bids and then announces its purchases for the remainder of Q4 2022,” the analyst wrote.

No matter what trend is coming in the short-to-medium term, the Arcane Research analyst is still bullish on Bitcoin over a longer period of time. Lunde expressed confidence that the next year will bring “idiosyncratic crypto-related regulatory clarity” in the United States as well as a more stable interest rate and inflation regime.

He also predicted more crypto growth as major financial institutions like BlackRock, Citadel, and Nasdaq have been moving into the industry recently. He stated:

“I am certain that the show will go on, and new highs will be met in a not too far distant future.”

As previously reported, some major financial institutions like JPMorgan set a long-term theoretical target for Bitcoin at $150,000.

Bitcoin traders expect sharp volatility, here’s how to profit from it

October 10, 2022 Coin Telegraph

Coin Telegraph

Multiple on-chain and technical analysis metrics suggest the crypto market is in for a sharp price move. Here is a strategy pro traders use to profit from volatility.

Analysts who closely monitor traditional markets have started calling for a volatility spike in cryptocurrencies due to dire macroeconomic conditions. Signs of stress coming from credit markets took investors by surprise after the British pound hit a record low against the U.S. dollar on Sept. 26 and liquidity concerns surrounding major global banks like Credit Suisse and Deutsche Bank are boosting traders’ bearish sentiments.

According to the Labor Department, unemployment in the United States reached 3.5% in September, the lowest in 43 years. Although that might sound positive at first mention, it indicates that the economy continued to overheat despite the U.S. Federal Reserve's (FED's) rate hikes and quantitative tightening. Meanwhile, eurozone retail sales dropped for the third consecutive month in August, a 2% contraction versus the previous year.

All of these developments back the analysts’ call for a spike in volatility. Volatility is a statistical measure commonly used by investors and traders calling for an increase in the metric and expecting brutal price oscillations.

There's been minimal volatility in crypto for months. I'm expecting a huge break-out in one direction or another at some point. If CPI data & fed guidance ends up being favorable, I can see a pump coming.
— Otto Suwen (@OttoSuwenNFT) October 5, 2022

In the above example from Oct. 5, Otto Suwen, a tokenomics expert and NFT influencer, expects a potential break-out in either direction, but in his opinion, an upside break is most likely. On Oct. 6, Scott Minerd, global chief investment officer at Guggenheim Partners, stated that the FED should pivot its policies “when something breaks.”

Volatility could impact price, but it does not distinguish which side

Realized (or historical) volatility measures how large daily price fluctuations are, and higher volatility indicates that the price can drastically change over time in either direction.

*Bitcoin 50-day realized volatility. Source: TradingView*

Volatility does not differentiate between bull and bear markets because it exclusively measures absolute daily oscillations. Furthermore, cryptocurrencies’ volatility is much higher than the stock market, currencies or commodities indexes.

Expecting high volatility for the next couple of weeks indicates that some participants have no confidence in the markets’ direction. There is an options strategy that fits this scenario and allows investors to profit from a strong move on either side.

The reverse (short) iron butterfly is a limited risk, limited profit options trading strategy. It’s important to remember that options have a set expiry date, meaning, the price increase must happen during the defined period.

*Profit/Loss estimate. Source: Deribit Position Builder*

The prices above were taken on Oct. 7, with Bitcoin trading at $19,422. All options listed are for the Nov. 25 expiry, but this strategy can also be used using a different time frame.

The suggested bullish strategy consists of selling 11.8 BTC contracts of the $17,000 put options while simultaneously selling 11.7 call options with a $23,000 strike. To finalize the trade, one should buy 13.5 contracts of $20,000 call options and another 10 contracts of the $20,000 put options.

While this call option gives the buyer the right to acquire an asset, the contract seller gets a (potential) negative exposure. To fully protect from market oscillations, one must deposit 1.26 BTC (roughly $24,470), representing the investors’ maximum loss.

Conviction in volatility is essential, as the risk-reward is reversed

For this investor to profit, one needs Bitcoin’s price to be below $17,720 on Nov. 25 (down 8.9%) or above $22,070 (up 13.6%). In essence, the trade has a hugely profitable area, but loses over twice the potential gain if Bitcoin fails to move either way considerably.

The maximum payout is 0.50 BTC (roughly $9,710), but if a trader is confident that volatility is right around the corner, a 15% move in 48 days seems feasible.

Notice that the investor can revert the operation before the options expiry, preferably right after a strong Bitcoin price move. All one needs to do is buy back the two options that have been sold and sell the other two that were previously bought.

Ethereum open interest hits $7.7B, raising the chance of a short squeeze above $1.5K

October 6, 2022 Coin Telegraph

Ethereum open interest hits .7B, raising the chance of a short squeeze above .5K

Coin Telegraph

The Ether futures premium remains negative, while options markets are pricing similar risks for bulls and bears.

Traders’ sentiment about Ether (ETH) has noticeably improved as the price rallied 7.5% from Oct. 2 to Oct. 6, but the price recapturing the $1,350 level was not compelling enough to trigger any bullish activity from derivatives traders.

Ether price is still 32% below the $2,000 level last seen on Aug. 14 and the network’s average transaction fee stood near $2 after the Merge.

The most significant upgrade on the Ethereum chain happened on Sept. 15, switching from energy-intensive mining technology to a set of validators required to deposit 32 ETH in staking.

Although necessary to implement future sharding or parallel processing capability, the Merge was not designed to solve scalability issues in the current phase. Consequently, the Ethereum network holds none of the top-5 decentralized applications by users, according to DappRadar.

For this reason, analysis of derivatives data is valuable in understanding how confident investors are on Ether sustaining the rally and heading toward $1,500 or higher.

Post-Merge sentiment remains neutral-to-bearish

Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders’ preferred instruments because they prevent the perpetual fluctuation of contracts’ funding rates.

In neutral-to-bullish markets, these fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. This situation is not exclusive to crypto, and futures contracts should trade at a 4% to 8% annualized premium in healthy markets.

*Ether 3-month futures annualized premium. Source: Laevitas.ch*

The Ether futures premium has been negative since the Merge on Sep. 15, indicating excessive demand for bearish bets, an alarming situation known as “backwardation.”

To exclude externalities specific to the futures instrument, traders must also analyze the Ether options markets. The 25% delta skew shows when market makers and arbitrage desks are overcharging for upside or downside protection.

In bullish markets, options investors give higher odds for a price pump, causing the skew indicator to fall below -12%. On the other hand, the market’s generalized panic induces a 12% or higher positive skew.

*Ether 30-day options 25% delta skew: Source: Laevitas*

The 30-day delta skew stood above the 12% threshold until Oct. 3, indicating traders’ unwillingness to take downside risks using ETH options. However, the sentiment quickly changed to a neutral level on Oct. 4 as market makers and arbitrage desks have since started to price similar odds of a price hike or downturn for ETH.

A rally toward $1,500 is not expected, but is possible

Derivatives metrics suggest that pro traders are not confident in Ether testing the $1,500 resistance anytime soon. Futures contracts have been trading lower than spot market prices, indicating a lack of interest in leverage longs (buyers). Meanwhile, Ether option traders continue to price similar bull and bear cases, showing little conviction on the recent 7.5% price gains.

There are $7.7 billion in Ether contracts futures open interest, and judging by the prevalence of bearish bets, a surprise rally could potentially cause a massive short squeeze.

While leverage offers a great way to increase exposure and gains, an unexpected price swing could lead to forced liquidations which further strengthen the price move.

Ether bulls might have difficulty gaining terrain because macroeconomic and regulatory uncertainties dictate the trend. With that said, a surprise 10% pump toward $1,500 would take bears by surprise and trigger liquidations on short positions.

Bitcoin derivatives data reflects traders’ belief that $20K will become support

October 5, 2022 Coin Telegraph

Bitcoin derivatives data reflects traders’ belief that K will become support

Coin Telegraph

Declining interest in margin shorts and a balanced risk perception in options markets highlight a possible path to $21,500 for BTC price.

Bitcoin (BTC) showed strength on Oct. 4 and 5, posting a 5% gain on Oct. 5 and breaking through the $20,000 resistance. The move liquidated $75 million worth of leverage short (bear) positions and it led some traders to predict a potential rally to $28,000.

$BTC #Bitcoin

Shared this descending channel 2 days ago.$BTC has managed to break through the middle line.
Next target = Upper channel trendline = ~21.5k.

In case of a breakout, 28k-30k are possible. pic.twitter.com/dyqMLdcXZ4
— ⓗ (@el_crypto_prof) October 4, 2022

As described by @el_crypto_prof, the descending channel continues to exert its pressure, but there could be enough strength to test the upper channel trendline at $21,500. The price action coincided with improving conditions for global equity markets on Oct. 4, as the S&P 500 index gained 3.1% and the tech-heavy Nasdaq Composite rallied 3.3%.

Curiously, the sentiment improvement happened while the United States job openings dropped by 1.1 million in August, according to the U.S. Labor Department. The decline was the largest since April 2020 and signaled the U.S. Federal Reserve's aggressive contractive monetary policy could end sooner than expected.

The overall bullish sentiment might have caused Bitcoin to break the $20,000 resistance, but that does not mean professional investors are comfortable at the current price levels.

Margin traders did not increase their longs despite the rally

Monitoring margin and options markets provides excellent insight into how professional traders are positioned. Margin trading allows investors to borrow cryptocurrency to leverage their trading position. For example, one can increase exposure by borrowing stablecoins to buy an additional Bitcoin position.

On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price declining. However, unlike futures contracts, the balance between margin longs and shorts isn't always matched.

*OKX USDT/BTC margin lending ratio. Source: OKX*

The above chart shows that OKX traders' margin lending ratio has remained relatively stable, near 12. At the same time, Bitcoin price jumped 5% since Oct. 3. Furthermore, the metric remains bullish by favoring stablecoin borrowing by a wide margin. As a result, pro traders have been holding bullish positions.

Option markets hold a neutral stance

To understand whether Bitcoin will be able to sustain the $20,000 support, the 25% delta skew is a telling sign whenever arbitrage desks and market makers are overcharging for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.

The skew indicator will move above 12% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 12% skew.

*Bitcoin 30-day options show 25% delta skew: Source: Laevitas.ch*

As displayed above, the 25% delta skew had been above 12% since Sept. 21. It did nosedive below that threshold on Oct. 3, suggesting options traders are pricing a similar risk of unexpected pumps or dumps.

Whenever this metric stands above 12%, it signals that traders are fearful and reflects a lack of interest in offering downside protection.

Despite the neutral Bitcoin options indicator, the OKX margin lending rate showed whales and market makers maintaining their bullish bets after the 5% BTC price increase on Oct. 4.

Derivatives seem to reflect trust in the $20,000 support gaining strength as investors display higher odds of the U.S. Federal Reserve easing interest rate hikes sooner than expected.

Decentralized App BCH Bull Prepares for Launch, Platform Allows Users to Long or Hedge Bitcoin Cash Against a Myriad of Tradeable Assets

October 3, 2022 Bitcoin.com

A crumbling stock market could create profitable opportunities for Bitcoin traders

October 3, 2022 Coin Telegraph

Apple

U.S. tech giants are set to report their second quarter earnings throughout October, presenting a scenario that could possibly benefit Bitcoin.

Some of the biggest companies in the world are expected to report their 2Q earnings in October, including electric automaker Tesla on Oct. 18, tech giants Meta and Microsoft on Oct. 24, Apple and Amazon on Oct. 26 and Google on Oct. 30. Currently, the possibility of an even more severe global economic slowdown is in the cards and lackluster profits could further add to the uncertainty.

Given the unprecedented nature of the United State Federal Reserve tightening and mounting macroeconomic uncertainties, investors are afraid that corporate profitability will start to deteriorate. In addition, persistent inflation continues to force businesses to cut back on hiring and adopt cost-cutting measures.

Strengthening the dollar is particularly punitive for U.S. listed companies because their products become more expensive in other countries and the reduced revenue brought in from overseas negatively impacts the bottom line. Google, for instance, is expected to grow revenues by less than 10%, down from a 40% growth in 2021.

The companies that comprise the S&P 500 account for an aggregate $32.9 trillion in value and crypto investors expect some of those bets to enter Bitcoin (BTC) if earnings season fails to sustain a modest growth — signaling the stock market should continue to underperform.

From one side, traders face the pressure from Bitcoin’s correlation to equities, but on the other hand, BTC’s scarcity might shine as inflation concerns arise. This possibly creates an immense opportunity for those betting on a BTC price rally, but extreme caution would also be needed for those opening positions.

Risk averse traders could use futures contracts to leverage their long positions but they also risk being liquidated if a sudden negative price move occurs ahead of the corporate earnings calendar. Consequently, pro traders are more likely to opt for options trading strategies such as the "long butterfly."

By trading multiple call (buy) options for the same expiry date, traders can achieve gains thre times higher than the potential loss. This options strategy allows a trader to profit from the upside while limiting losses.

It is important to remember that all options have a set expiry date, so the asset's price appreciation must happen during the defined period.

A cautionary approach to using call options

Below are the expected returns using Bitcoin options for the Oct. 28 expiry, but this methodology can also be applied using different time frames. While the costs will vary, the general efficiency will not be affected.

This call option gives the buyer the right to acquire an asset, but the contract seller receives (potential) negative exposure. The "long butterfly" strategy requires a short position using a call option, but the trade is hedged on both sides — limiting the exposure.

To initiate the execution, the investor buys 13 Bitcoin call options with a $20,000 strike and sells 24 contracts of the $23,000 call. To finalize the trade, one would buy 10.5 BTC contracts of the $26,000 call options to avoid losses above such a level.

Derivatives exchanges price contracts in BTC terms, and $19,222 was the price when this strategy was quoted.

Using this strategy, any outcome between $20,690 (up 7.6%) and $26,000 (up 35.3%) yields a net profit — for example, the optimal 20% price increase to $23,000 results in a 1.36 BTC net gain, or $24,782 at current levels. Meanwhile, the maximum loss is 0.46 BTC or $8,382 if the price on Oct. 28 expiry happens below $20,000.

The "long butterfly" strategy provides a potential gain that is three times larger than the maximum loss.

Overall, the trade yields a better risk-to-reward outcome than leveraged futures trading, especially considering the limited downside. It certainly looks attractive for those expecting deteriorating business conditions for listed companies.

It is worth highlighting that the only up front fee required is 0.46 BTC, which is enough to cover the maximum loss.

derivatives

It starts with selling put options for upside exposure

The max profit is 2x larger than the potential loss

Bears placed their bets at $19,000 and lower

Bulls can still flip the table and secure a $150 million profit

A few more dips below $19,000 would not be surprising

Options traders remain moderately risk-averse

Long-to-short data show traders adding longs

Skew and leverage are critical to sustaining the $1,250 support

Volatility could impact price, but it does not distinguish which side

Conviction in volatility is essential, as the risk-reward is reversed

Post-Merge sentiment remains neutral-to-bearish

A rally toward $1,500 is not expected, but is possible

Margin traders did not increase their longs despite the rally

Option markets hold a neutral stance

A cautionary approach to using call options

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