Bitcoin Defed expectations of significant volatility in August and acted within an interval. As the market dynamics indicate a continued low volatility regime in the short term, 10x research highlights “Short Strangle” as an ideal spectacle.
“Given the current dynamics of the Bitcoin option market, a short choking looks well suited for the next month. With Bitcoin trading about $ 113,000 and an expected range between $ 95,000 and $ 125,000 selling an out-of-the-money money [September expiry] Put nearly $ 95,000 with one out of money [September expiry] Ring near $ 125,000 gives an opportunity to catch prize, “Markus Thielen, founder of 10x research, said in a report to clients on Thursday.
Short suffocation involves a simultaneous writing (Sales) Of the out-of-the-money money higher strike calls and OTM Lower Strike sets the same outlet, placed equilibrium from the underlying asset price.
The strategy is similar to selling insurance against both Bullish and Bearish features in exchange for a prize, which represents the maximum profits that can be achieved if the spot price remains between the two strike prices – $ 95,000 and $ 125,000 in this case.
Sales options (or choking) is a common strategy when it is implied volatility (IV) exceeds realized volatility as this allows traders to capture richer prizes and the market is expected to remain relatively stable.
“The strategy works because the implied volatility curve trades over realized levels, signaling options are overpriced, and the market is likely to deliver large features outside your defined range in the short term,” Thielen noted. “The hinted options for volatility period indicate reassure in the short term.”
The implied volatility (IV) Term structure is a graphic representation that shows how volatility is expected to develop across different future time horizons. It is typically upward sloping, which reflects increasing uncertainty and risk when the time to expire is extended.
Risk reward profile
BTC has to continue trading between $ 95,000 and $ 125,000 for the proposed strategy to generate profits. The range trade will reduce the demand for OTM calls and sets out and thereby draining the prize from these options and generating a surplus for suffocating sellers.
Thielen’s previous recommendation from the beginning of August was also a short choking that involved a $ 105,000 put and a call of $ 130,000. This strategy generated a yield of 3.5%.
Note, however, that short strangles have significant risks, especially in the event of a sudden increase in volatility, which can lead to significant losses. Therefore, retailers must continuously monitor the position and relevant market variables to control the risk effectively.
Read more: Bitcoin traveled to $ 190,000 on institutional wave, says the research company
