Here’s how multi-leg options allow traders to take advantage of the $ 2K Ethereum price


This week the price of ether (ETH) finally broke through the $ 2,000 level as aggressive institutional inflows via Grayscale Investments products and declining foreign exchange reserves signaled increased buying pressure.

While many traders are skilled in using perpetual futures and the basic margin investing tools available on most exchanges, they may not be familiar with the additional instruments that can be used to maximize their earnings. A simple, although expensive, way is to purchase Ether call option contracts.

Historical volatility of the aether over 60 days. Source: TradingView

For example, a March 26 call option with a strike of $ 1,760 is trading at $ 340. In the current situation, the holder would only profit if Ether trades above $ 2,180 in 39 days, a gain of 21% from the current $ 1,800. If Ether remains stable at $ 1800, that trader will lose $ 300. It’s certainly not a great risk-reward profile.

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By using buy (buy) and sell (sell) options, a trader can create strategies to reduce this cost and improve potential earnings. They can be used in bullish and bearish circumstances and most exchanges now offer easily accessible options platforms.

The suggested bullish strategy is to sell a put of $ 2,240 to create positive exposure to Ether while simultaneously selling a call of $ 2,880 to reduce gains above that level. These transactions were modeled on the price of Ether at $ 1,800.

Two out-of-the-money positions (small odds) are needed to protect against possible price drops below 20% or Ether gains above 130%. These additional trades will give the trader peace of mind while reducing margin (collateral) requirements.

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Estimate of profit / loss. Source: Deribit position builder

The above transaction is to sell 1 Ether contract from the March 26 put option with a strike of $ 2,240 while selling another 1 Ether contract from the strike for $ 2,880. The additional transactions also avoid unexpected scenarios for the same expiration date.

The trader should buy 0.73 Ether contract from the $ 4,160 call in order to avoid excessive upside losses. Likewise, buying 1.26 Ether contracts with $ 1,440 selling will protect against larger negative price movements.

As the estimate above shows, any result between $ 1,780 and $ 3,885 is positive. For example, a 20% price increase to $ 2,160 results in a net gain of $ 478. Meanwhile, the maximum loss for this strategy is $ 425 if Ether is trading at $ 1,440 or lower on March 26.

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On the other hand, this strategy can yield a positive gain of $ 580 or more from $ 2,240 to $ 3,100 upon expiration. All in all, this gives a much better risk-reward from trading leveraged futures, for example. Using 3x leverage would result in a loss of $ 425 as soon as Ether drops 8%.

This multi-option strategy trade offers better risk-reward for those looking for exposure to rising Ether prices. Also, there is no upfront funds involved for the strategy, except for margin or collateral deposit requirements.

The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of TBEN. Every investment and trading move involves risk. You need to do your own research when making a decision.