How Professional Ethereum Traders Place Bullish Bets on ETH Prices While Limiting Losses


Being bullish on Ether (ETH) over the past four months did not pay off as its price fell 44% from $4,600. The growth of decentralized finance (DeFi) apps that fueled the rally has waned, in part due to network congestion and average transaction fees of $30+.

The cooling-off period can also be attributed to excessive expectations, such as the fee reduction mechanism introduced in August 2021 with the London hard fork. After drastically reducing daily net issuance, investors jumped to the conclusion that Ether would become “ultrasound money”.

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Unfortunately, history shows that “hard money” requires several decades of reliable monetary policy. For example, the euro was launched to the public in 2002 despite periods of negative issuance in 2014 and 2019. Yet its purchasing power has not held up against durable assets like gold or real estate.

Case-Shiller US Home Price Index/EUR (orange, left) & Gold/EUR (blue). Source: Trading View

In light of the prolonged 4-month underperformance, one could buy ultra-cheap (bullish) $4,000 ETH call options for May for $68. However, with 75 days left for expiry, the chances of a 55% rally from the current $2,570 are slim.

It seems safer to bet on positive price action, but be more selective about your target range. This is precisely how professional traders use the “iron condor” options strategy.

Reduction of losses by limiting the rise

A total of 10.2 million ETH has been staked in the Eth2 deposit contract (consensus layer) and investors seem confident about the proof-of-stake migration. Moreover, alleviating the biggest hurdle of the Ethereum network, namely scaling, could undoubtedly cause the price of ETH to skyrocket.

Finding a strategy that maximizes gains up to $3,600 by May 27 seems prudent. On the other hand, hedging a negative 7% performance is also sensible given the uncertainty surrounding US President Joe Biden’s crypto regulatory efforts.

Although the executive order signed on March 9 did not announce any restrictive measures, it undoubtedly laid the groundwork for more targeted federal control.

In this sense, the biased “Iron Condor” options strategy fits perfectly with such a slightly bullish scenario.

Iron condor ether options distorted the strategy’s returns. Source: Derisory Position Generator

The “Iron Condor” sells both call (bullish) and put (bearish) options at the same price and expiration date. The example above was set using May 27 ETH options on Deribit.

The ETH profit zone is between $2,600 and $3,800

Investors must initiate the trade by shorting (selling) 2 $3,000 call and put option contracts. Then the trader should repeat the procedure for the options at $3,200.

To protect against extreme price movements, a protective put at $2,400 was used. Therefore, contracts of 5.20 will be needed depending on the price.

Finally, just in case the price of Ether goes above $4,000, the buyer will need to acquire 2.10 call option contracts to limit the potential loss of the strategy.

The number of contracts on the example above targets a maximum gain of 0.63 ETH and a potential loss of 0.40 ETH. This strategy generates a net profit if Ether trades between $2,600 and $3,820 on May 27.

Using the asymmetric version of the Iron Condor, an investor can profit as long as the price increase of Ether is less than 49% at expiration.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.