How multi-leg options allow traders to profit from $ 2K ETH price

Last week, ETH price finally surpassed $ 2,000 as institutional capital inflow actively poured into Grayscale Investments products and declining exchange reserves suggesting increasing buying pressure.

While many traders have the skills to use perpetual futures and the basic margin trading tools available on most exchanges, they may not be aware of what other tools help maximize. profit. A simple, though expensive way is to buy options to buy ETH.


60-day historical volatility | Source: TradingView

For example, a call option on March 26 with an strike price of $ 1,760 trades at $ 340. Under the current situation, holders will only gain profits if ETH trades above $ 2,180 for 39 days, up 21% from $ 1,800. If ETH stays the same at $ 1,800, the trader will lose $ 300. This is certainly not an excellent reward-risk profile.

By using buy and sell options, a trader can create a variety of strategies to reduce costs and improve potential profits. They can be used in bullish and bearish scenarios, and most exchanges offer an easy to access options platform right now.

Recommended bullish strategy involves selling $ 2,240 put to create positive exposure to ETH while simultaneously selling $ 2,880 call to reduce gains above that threshold. These transactions are simulated from ETH price at $ 1,800.

2 out of money (small odds) positions are required to protect from a potential price crash below 20% or ETH rising above 130%. Those additional trades will give the trader peace of mind while also reducing margin requirements (collateral).


Profit / Loss Estimation | Source: Deribit Position Builder

The above transaction consists of selling 1 ETH contract of the 26/3 put option at a strike price of $ 2,240 while selling 1 other ETH contract with the strike price of $ 2,880. Additional transactions also help avoid undesirable circumstances for the same expiration date.

Traders need to buy the 0.73 ETH contract of the $ 4,160 call option to avoid excessive losses. Similarly, buying the 1.26 ETH contract of the $ 1,440 put option will protect from the more significant negative price moves.

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

On the other hand, this strategy can make a net profit of $ 580 or more between $ 2,240 and $ 3,100 at expiration. Overall, it offers a much better reward-risk than trading on leveraged futures for example. Using 3x leverage will have a loss of $ 425 as soon as ETH drops 8%.

This multi-option strategy trading offers a better reward-risk for those looking to get exposed to the upheaval of ETH. Furthermore, there are no upfront payments involved in the strategy, except for margin or collateral requirements.

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