Pro traders often use the front spread options strategy to generate hefty returns without having to pay for their positions upfront.
Bitcoin’s (BTC) upcoming March 26 options expiry might become the largest ever, with $6.1 billion open interest on the line. With less than 4 days ahead of the settlement date, pro investors will have already set up strategies for the next month.
As BTC price has already surged 72.7% since February, most traders are skeptical of another rally taking place over the next couple of weeks. Nevertheless, the $55,000 support has shown strength and is a signal that the uptrend is intact.
Whales and arbitrage desks are somehow optimistic, as reflected by the futures contracts premium and top traders’ long-to-short ratio. The excitement seems more restrained as opposed to mid-March, when the futures premium reached 35% annualized.
Options strategies do not face liquidations ahead of expiry
Options strategies provide excellent opportunities for traders who have a fixed-range target for an asset. Using leveraged futures contracts also allows traders to leverage the position, although the stop loss decreases the trade’s viability.
On the other hand, a trader can create a slightly bullish strategy using multiple put (sell) options. The front spread with puts allows gains with no upfront cost other than the margin requirements for a negative price swing. The same pattern can be used in both bullish and bearish circumstances, depending on the investor’s expectations.
It’s important to remember that options have a set expiry date; therefore, the price increase must happen during the defined period.
The Bitcoin calendar options below are for the April 30 expiry, but this strategy can also be used on Ether (ETH) options or a different time frame. Although the costs will vary, its general efficiency should not be affected.
The suggested slightly bullish strategy consists of buying 0.9 BTC worth of $76,000 put options while simultaneously selling 2.05 of $64,000 puts. To finalize the trade, one should buy 1.31 BTC worth of $48,000 put options.
It is worth noting that derivatives exchanges price these contracts in BTC terms. Thus, the displayed profit and loss above are shown in satoshis (1/100,000,000 BTC) at the expiry date.
While this put option gives the buyer the right to sell an asset at a predetermined price, the contract seller is committing to buy it. Therefore, put options can also be used for neutral-to-bullish strategies.
This front spread with puts could yield a $10,770 gain
As the estimate above shows, any outcome between $54,600 (down 4.3% from the current $57,050) and $76,000 (up 33.2%) yields a net gain. For example, a 10% price increase to $62,750 results in a $9,350 net gain, or BTC 0.149. Meanwhile, this strategy’s maximum loss is $7,600 if BTC trades at $48,000 (down 15.9%) on April 30.
This front spread with put options produces a potential $10,770 gain at $64,000, which is 2.85x more than the loss if BTC price drops 10% to $51,350 on the expiry date.
The multiple options strategy trade provides a better risk-reward for bullish traders seeking exposure to BTC’s price increase. Moreover, there is no upfront fee apart from the 0.157 BTC margin requirements to cover potential losses.
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.