Here’s how pros safely trade BTC while it range trades near $40K

Traders who are unsure about Bitcoin’s chance of continuation above $40,000 can use a combination of protective put options to generate profit.

Investors tend to define the market as either bullish or bearish, but sometimes the price can remain within a specific range for an extended period. 

This type of sideways movement is not necessarily stable because cryptocurrency markets have high volatility that stems from a range of uncertainties and the early adoption cycle.

For example, investors who concluded that the Bitcoin (BTC) bull run was over after the first week of 2021 probably regret that decision.

Bitcoin price at Coinbase in USD, Jan. 2021. Source: TradingView

Starting on Jan. 8, Bitcoin price traded in a descending channel within a $10,000 range. The movement lasted for 26 days until it finally broke out in early February.

Bitcoin price at Coinbase in USD, Aug. 2020. Source: TradingView

In August and September 2020, Bitcoin had two distinct ranging periods. However, it is not possible to consider those movements as a bull market. On the other hand, bears had few reasons to celebrate since the $10,000 bottom was tested multiple times, but the market recovered from it.

Is Bitcoin price in an ascending channel?

Although it seems premature to call it, there is a possibility that Bitcoin has entered a positive range aiming for $40,000 by the end of June.

Bitcoin price at Coinbase in USD, current. Source: TradingView

The present range indicates a $37,000 to $43,000 range for June 25, but with crypto's extreme volatility, the channel's support and resistance levels are sometimes drastically tested.

There is reason to believe that an impending short-squeeze could quickly recover a $50,000 support for Bitcoin, considering the $500 million raised by MicroStrategy and Paul Tudor Jones's intention to increase his BTC position.

On the other hand, there are also fears that U.S. Treasury Secretary Janet Yellen's remarks about digital assets being used for money laundering and illicit payments standing as a threat to Bitcoin price. Furthermore, Gary Gensler, the U.S. Securities and Exchange Commission chair, recently expressed concerns about the absence of regulation on crypto exchanges.

Smart traders take less risk on range trading moves

For options traders, the best option sometimes is to bet on maintaining the current range, especially for short-term periods. That's where the Christmas tree spread with puts strategy enters into play.

Deribit position builder profit & loss simulator. Source: Deribit

Instead of betting on a bull or bear market, this option strategy uses protective put options to benefit traders with a neutral stance. The investor will profit if Bitcoin remains between $37,170 and $44,000 on June 25. Therefore, it offers protection both from an 8.5% move in either direction.

To achieve this, one needs to buy 2 BTC worth of the $36,000 put, sell 3.33 BTC worth of the $40,000 put in addition to buying 1.33 BTC of the $46,000 put. Each contract is maturing on June 25.

The Christmas tree spread with puts is a low-risk strategy

With less than 11 days left before the June 25 expiry, it is reasonable to assume that there is a good probability that the market stays within this range. However, this strategy offers a 0.062 BTC ($2,515 at $40,570) maximum loss in case of a surprise move.

Profit-wise, the strategy can yield a 0.1375 BTC ($5,500) gain at $40,000.

Therefore, it seems like a smart choice for an investor that expects the current uptick in bullish momentum to continue. It is worth noting that most derivative exchanges offer options trading from as little as 0.10 BTC.

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