Bitcoin Volatility Near Historic Lows, Large Move Coming Soon
Bitcoin has dropped to historically low levels of volatility. Typically this means a very large move in either direction is going to happen relatively soon. How soon exactly is not clear, maybe 1-4 weeks. This also doesn't indicate which direction the market will move, just that a breakout is likely coming soon. Take your pick on which direction it is going to go, or wait for a clear breakout.
Personally, I am biased to the downside. What I'm seeing now are bearish momentum divergences, bearish time targets, bearish Elliott Wave counts, bearish price action indicators, bearish moving averages, very positive sentiment (which is bearish, in particular clear manias formed in memecoins and NFTs again), and fundamental bearishness (market makers leaving, regulatory risk increasing, crypto banks going under, on-ramps closing, and over-leveraged holders like MSTR, DCG, and some major miners still not forced out), there's also macroeconomic risk with global rates going higher and no sign of a Fed rate cut until at least late 2024.
If this does clearly break to the upside I will be ready to flip long because we could see a move to around $40k in that case (bear market will probably resume after that). A break to the downside likely means we'll continue with my forecasted bear market ($10k in early 2024, $3-5K in 2025), and this will be a long-term top for the next ~2 years.
Options Straddle
An advanced trading strategy to take advantage of this particular situation is called an "Options Straddle."
This is a non-directional bet which is essentially long volatility. Since volatility virtually always increases after reaching a low point, this strategy aims to profit from an increase in volatility regardless of the direction in which the market moves.
To enter into an options straddle, you simultaneously buy a Call and Put option with the same expiration at the money.
Example
Buy Sept29th 29k Call for $1560 + Buy Sept29th 29k Put for $1060
Breakeven Price Calculation For Bull Scenario = Strike Price of the Call + Premium paid for the Call + Premium paid for the Put
29,000+1,560+1,060 = $31,620
Breakeven Price Calculation For Bearish Scenario = Strike Price of the Put − (Premium paid for the Call + Premium paid for the Put)
29,000 - (1,560 + 1,060) = $26,380
So as you can see, anything above $31,620 or below $26,380 at the expiration time of the option will result in a profit.
To calculate profit at the time of expiration, for each BTC options contract every $1 above the upper breakeven would be $1 of profit, and every $1 below the lower breakeven would be $1 in profit. However, due to extrinsic value, the trade could be profitable at a lower or higher price (respectively) if it is sold before the expiration date.
Also, you can decrease/increase the respective breakeven prices by buying options which are cheaper (ie. they have earlier expiration dates), but this increases the risk that the price may not change significantly before the expiration date, which would result in a loss.
Calculating Loss
The MAX loss for this trade would occur if BTC is at exactly 29k when the options expire, resulting in a loss of 1,560+1060 = $2,620.
If the underlying price is above the strike but below the bullish break-even:
Loss = Total Premium Paid − (Underlying Price − Strike Price)
If the underlying price is below the strike but above the bearish break-even:
Loss = Total Premium Paid − (Strike Price − Underlying Price)
Personally, I am biased to the downside. What I'm seeing now are bearish momentum divergences, bearish time targets, bearish Elliott Wave counts, bearish price action indicators, bearish moving averages, very positive sentiment (which is bearish, in particular clear manias formed in memecoins and NFTs again), and fundamental bearishness (market makers leaving, regulatory risk increasing, crypto banks going under, on-ramps closing, and over-leveraged holders like MSTR, DCG, and some major miners still not forced out), there's also macroeconomic risk with global rates going higher and no sign of a Fed rate cut until at least late 2024.
If this does clearly break to the upside I will be ready to flip long because we could see a move to around $40k in that case (bear market will probably resume after that). A break to the downside likely means we'll continue with my forecasted bear market ($10k in early 2024, $3-5K in 2025), and this will be a long-term top for the next ~2 years.
Options Straddle
An advanced trading strategy to take advantage of this particular situation is called an "Options Straddle."
This is a non-directional bet which is essentially long volatility. Since volatility virtually always increases after reaching a low point, this strategy aims to profit from an increase in volatility regardless of the direction in which the market moves.
To enter into an options straddle, you simultaneously buy a Call and Put option with the same expiration at the money.
Example
Buy Sept29th 29k Call for $1560 + Buy Sept29th 29k Put for $1060
Breakeven Price Calculation For Bull Scenario = Strike Price of the Call + Premium paid for the Call + Premium paid for the Put
29,000+1,560+1,060 = $31,620
Breakeven Price Calculation For Bearish Scenario = Strike Price of the Put − (Premium paid for the Call + Premium paid for the Put)
29,000 - (1,560 + 1,060) = $26,380
So as you can see, anything above $31,620 or below $26,380 at the expiration time of the option will result in a profit.
To calculate profit at the time of expiration, for each BTC options contract every $1 above the upper breakeven would be $1 of profit, and every $1 below the lower breakeven would be $1 in profit. However, due to extrinsic value, the trade could be profitable at a lower or higher price (respectively) if it is sold before the expiration date.
Also, you can decrease/increase the respective breakeven prices by buying options which are cheaper (ie. they have earlier expiration dates), but this increases the risk that the price may not change significantly before the expiration date, which would result in a loss.
Calculating Loss
The MAX loss for this trade would occur if BTC is at exactly 29k when the options expire, resulting in a loss of 1,560+1060 = $2,620.
If the underlying price is above the strike but below the bullish break-even:
Loss = Total Premium Paid − (Underlying Price − Strike Price)
If the underlying price is below the strike but above the bearish break-even:
Loss = Total Premium Paid − (Strike Price − Underlying Price)