For the last 20 days, Bitcoin price has been see-sawing amongst key resistance and support levels, $36k and $31k, respectively. Considering this, it would be fair to expect the Bitcoin trading volume to diminish. However, certain traders are busy as usual, betting on Bitcoin’s uneventful pattern, essentially hoping prices do not break out in the short term.
When it seems to be a boring summer, options traders have figured out a strategy to reverse this unexciting situation. Some options traders are placing “short strangles” — basically a bet that Bitcoin will continue to see-saw in the range it is currently trapped in.
A short strangle is a strategy in options that requires the investor to place one short call and one short put, with the short call having a higher strike price compared to the short put. Also, the investors should settle an identical expiration date and underlying asset on the calls — in this case, Bitcoin. Thus, if the asset price remains between the strike prices, the options will expire worthlessly and the investor will keep whatever premium it got for the options.
QCP Capital, a Singapore-based trading firm, asserted that they are using the “short strangles” strategy to benefit the current state of affairs. “Our favorite trade continues to be short BTC strangles within the $30,000 to $40,000 range. With psychological resistance at $40,000 and strong support at $30,000, there’s a good chance that BTC trades in this $10,000 range in the near future, which would likely cause implied volatility to collapse,” the firm said in a Telegram post.
While stating that the lack of momentum in the Bitcoin market has amplified their conviction, the firm declared their intentions to continue using this strategy up until August. “Right now, our trading plan follows the 2018 BTC analog where we expect a dampened trading environment from here to August (short volatility), followed by a rally,” QCP Capital said.
Pankaj Balani, CEO of Delta Exchange, affirmed that most traders are presently using this strategy. “It’s the most popular trade right now. For July, open interest remains highest for $30,000 strike puts, and $40,000 strike calls as traders write this range to collect the premiums,” he stated.
However, it is good to point out that this type of trade is quite risky while offering a very limited profit. If the market breaks out in any direction, either up or down, the investor would endure amplified losses.