Avoiding The Shutdown’s Downsides
Bitcoin (BTC) began October on a bullish note, with the token experiencing a slight surge in price over the past 24 hours as it continues its rally toward the $28K range. Some analysts opined that the uncertainty surrounding the United States debt limit contributed to the recent price uptick.
However, reports indicate that President Joe Biden signed the spending bill hours before the September 30 deadline, averting a potential government shutdown. Nevertheless, investors wonder whether the positive momentum for cryptocurrencies will persist since the worst political-economic scenario has been averted.
It is important to remember that the bill provides additional funding for the next 45 days, pending when the US House and Senate will fine-tune their fiscal strategies for 2024. Before the US President signed the bill, or if he hadn’t, an attractive trade for crypto investors would have been a long on BTC/USD.
However, a sudden price decline would lead to a significant liquidation risk. Also, whether a successful budget discussion will favor cryptocurrencies is yet to be determined.
Nevertheless, US lawmakers must reach an agreement by November 17. The possibility of an economic recession looms large after the avoided financial chaos.
The United States Fed’s battle with persistent inflation and surging energy costs shows no sign of an end yet. This has resulted in the S&P 500 dropping to its lowest level in 110 days, pushing the 10-year Treasury yield to levels not seen since October 2007.
Furthermore, crude oil prices continue to spike, trading at almost $90 and representing a 27.5% increase in the last three months. This rapid rise in oil prices could worsen the currently bad inflation, casting a long shadow over America’s economic vitality.
No Guarantee Of Bullish Momentum
Meanwhile, BTC’s price has continued its price rally. Thus, investors predict increased volatility for this asset as the debt ceiling decision approaches.
Given the uncertainty surrounding the political atmosphere in the United States, many traders are keen to avoid directional risks. Hence, they will rather choose a limited-risk, limited-profit trading approach.
On October 2, Bitcoin traded at $28,326, reflecting the speculated market prices. This is a good development, given that all listed BTC options expire by October 27.
Option holders will hope that this rally can continue before this expiry date. However, it is worth noting that this strategy can also be replicated in different time frames to achieve unique results.
The most common neutral-market tactic entails selling 5.4 contracts of $26K put options while simultaneously selling the same volume of contracts call options but at $30K. For the trade to be completed, traders must buy another five contracts of $28,000 put options and 5.8 contracts of $28,000 call options.
A call option grants the buyer the right to purchase an asset while the contract seller assumes potential downside risk. To fully protect assets against market fluctuations, an investor should deposit 0.253 BTC (approximately $7,170), the maximum possible loss allowed.
Conviction In Price Volatility
Meanwhile, the investor can only make a profit if BTC’s price is less than $26,630 on October 27 (a 6% decrease) or more than $29,280 (a 3.4% increase). This provides a substantial profit range, but it is important to note that losses could be 90% more if Bitcoin remains stable than predicted gains.
The maximum possible payout is 0.133 BTC (approximately $3,770). However, a 6% move within 24 days is possible, provided the trader is sure of an imminent volatility.
An essential thing to remember is that investors can cancel the transaction before the options expiration, preferably after an upward movement in Bitcoin’s price. To make this happen, they must repurchase the two options they previously sold and sell their two previously acquired options.
Meanwhile, BTC’s price is up 0.1% in the last 24 hours and trades at $27,430, according to current Coingecko data.
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