A perfect storm may be brewing as experts predict higher market volatility due to the U.S. government debt discussions and increased stress from the banking sector. This might provide Bitcoin (BTC) traders with exciting opportunities, whether the cryptocurrency’s price moves up or down 10% within 55 days.
Traditional market analysts have started calling for a significant volatility spike, as the U.S. government debt situation intensifies. In addition, the banking sector is showing signs of distress as the DXY index, which measures the U.S. dollar against a basket of foreign currencies, hit its lowest point in 12 months at 101 on May 4th. This turmoil could very well impact Bitcoin’s price, but it is still unknown in which direction.
Historically, government spending and debt concerns have correlated with spikes in stock market volatility, as exemplified by a chart from Deutsche Bank. However, the volatility indicator itself does not dictate whether the market has been gaining strength or anticipating eventual crashes. Furthermore, when Bitcoin’s historical 40-day realized volatility is below 40%, it usually does not remain there for long.
As traditional markets feel the strain caused by the regional banking crisis and debt ceiling discussion, Bitcoin’s perfect storm for heightened volatility may be forming. Though many investors are hesitant to take directional bets, there is an options strategy that can still let them profit from robust moves on either side: the reverse (short) iron butterfly.
This limited-risk, limited-profit options trading strategy requires adherence to set expiration dates. For instance, using option prices from May 5th with Bitcoin trading at $29,172, one may sell 9.2 BTC contracts of the $26,000 put options, while simultaneously selling 12.2 call options with a $33,000 strike. Then buy 13.5 contracts of $30,000 call options and another 8 contracts of $30,000 put options to complete the trade.
The maximum payout is 0.337 BTC (roughly $9,830), but traders must be confident that volatility is imminent for this to be profitable. A 10% move in 55 days seems viable, and as long as Bitcoin’s price is below $27,000 on June 30 (down 7.5%) or above $32,150 (up 10.2%), the trade has a highly lucrative area.
As the options trade can be reverted before the expiry, it is vital to monitor Bitcoin’s price moves and adjust the strategy accordingly. While every investment and trading move involves risk, this strategy could provide a profitable opportunity for investors who believe that market volatility is just around the corner.
Source: Cointelegraph
