Being bullish on Ether (ETH) has paid off recently as the token gained 60% in the last 30 days. The spectacular growth of decentralized finance applications (DeFi) likely fueled the entry of institutional investors, and the recent hard fork London implemented a rate-burning mechanism that dramatically reduced daily net issuance.
Although Ether is not yet a fully deflationary asset, the update paved the way for Eth2, and the network is expected to abandon traditional mining and enter proof-of-stake consensus soon. Ether will then be slightly deflationary as long as the fees stay above a certain threshold and the level of participation of the network.
In light of the recent rally, there are still daily calls for Ether to rally above $ 5,000, but surely even the most optimistic investors know that a 90% rally from the current $ 3,300 level seems unlikely before the end of the month. anus.
It would seem more prudent to have a safety net if the cryptocurrency market reacts negatively to possible regulation coming from US Representative Don Beyer of Virginia.
Despite being in its early stages, The proposal for “The Digital Asset Market Structure and the Investor Protection Act of 2021” seeks to formalize the regulatory requirements for all digital assets and digital asset securities under the Bank Secrecy Law, classifying both as “monetary instruments” .
Reduce your losses by limiting your benefits
Considering the persistent regulatory risks that exist for crypto assets, finding a strategy that maximizes profits up to $ 5,000 by the end of the year while limiting losses below $ 2,500 seems like a prudent and well-aligned decision that would prepare investors. investors for both scenarios.
There is no better way to do this than by using the “Iron Condor” options strategy which has been slightly skewed for a bullish result.
The call option gives the buyer the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium. Selling a call option, on the other hand, creates negative exposure to the asset’s price.
The put option provides its buyer with the privilege of selling an asset at a fixed price in the future, a hedge strategy to the downside. Meanwhile, selling this instrument offers upward price exposure.
The iron condor basically sells the call and put options at the same price and expiration date. The above example has been set using ETH options from December 31st on Deribit.
The maximum profit is 2.5 times greater than the potential loss
The buyer would initiate the operation by simultaneously shorting (selling) 0.50 contracts of the call and put options of USD 3,520. Later, the buyer must repeat the procedure for the USD 4,000 options. To hedge against extreme price movements, a hedging position of $ 2,560 has been used. Consequently, 1.47 contracts will be required depending on the price paid for the remaining contracts.
Finally, in case the price of Ether exceeds $ 7,000, the buyer will need to purchase 0.53 call option contracts to limit the potential loss of the strategy.
Although the number of contracts in the example above points to a maximum profit of ETH 0.295 and a potential loss of ETH 0.11, most derivatives exchanges accept orders as low as 0.10 contracts.
This strategy produces a net profit if Ether is trading between $ 2,774, which is 10.5% below the current price of $ 3,100, and $ 5,830 on December 31.
By using the skewed version of the iron condor, an investor can benefit as long as the rise in the price of Ether is less than 88% by the end of the year.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.