Original｜Odaily Planet Daily
Author: jk
In the crypto market where major events have occurred recently, novice investors often face a difficult problem: how to seize the volatility caused by major events? How to make layouts in the face of market volatility uncertainty, so as to seize profit opportunities and effectively control risks? In view of this situation, we will introduce four option strategies suitable for novices - long-short synchronization strategy, long-short straddle strategy, covered call option and synthetic futures strategy. Each of these strategies has its own unique application scenarios, and achieves profit goals through different combinations.
Before reading this article, readers need to understand the basic concept of options. If you are still unclear about the concept of options, you can read here : What are options?
1. Long Straddle
The long-short simultaneous strategy refers to the simultaneous purchase of call options and put options of the same asset with the same strike price . When the market is about to face a big fluctuation, this strategy is likely to make a profit regardless of whether the market price moves up or down significantly.
This strategy is suitable for use before major events, such as when important economic data, policies or major events are about to be released. The rise and fall of the market is uncertain, but the market price will definitely fluctuate greatly.
Lets look at an example. As of press time, the current price of Bitcoin is $75,500. According to the real-time data of OKX options, an investor buys a call option with a strike price of $75,500 for a premium of $603, and buys a put option with a strike price of $75,500 for a premium of $678. The total option cost invested is $603 + 678 = $1,281. Both options expire tomorrow.
Next, let’s look at the returns of two hypothetical situations after the next day’s expiration:
Bitcoin price drops to $73,000:
If the price of Bitcoin drops to $73,000, the $75,500 put option will have an intrinsic value of $2,500 ($75,500 - $73,000 = $2,500). After deducting the initial premium of $1,281, the net profit is $2,500 - $1,281 = $1,219.
Bitcoin price remains unchanged ($75,500):
If the Bitcoin price remains at $75,500 on the expiration date, both the call and put options will have no intrinsic value, meaning that neither option will be exercised. The investor will lose the entire option premium, or $1,281 in cost.
The above examples are all from the profit of exercising the options at expiration, and the profit from selling the options due to price changes is not included. In simple terms, if the market has a large one-sided trend, the option premium on one side will be lost, while the other side will bring considerable profit. If the market fluctuates sideways, the option premium itself is a cost.
The main advantage of the long-short simultaneous strategy is that it has limited risk. The maximum loss is only the cost of purchasing two options, and even if the market volatility is not large, it will not cause greater losses. Secondly, this strategy can make a profit regardless of whether the market goes up or down, as long as the volatility is large enough. However, if the market price volatility is not enough to cover the option cost, investors may face a large loss, so this strategy is more suitable for markets with higher volatility, or specific dates where high volatility is expected.
2. Long Strangle
The long and short straddle strategy is to buy call and put options with different strike prices to reduce costs . Generally speaking, investors buy a put option below the current price and a call option above the current price. This flexibility is very effective in a volatile market.
When market uncertainty is high and prices are expected to fluctuate dramatically but the direction is unclear, long and short straddle strategies can help investors capture volatility opportunities at a lower cost.
Lets look at an example based on real data:
As of press time, the current price of Bitcoin is $75,500. The investor adopts a long-short straddle strategy and buys a put option with an exercise price of $74,000. According to the real-time data of OKX, the option premium is $165. At the same time, he buys a call option with an exercise price of $76,000, and the option premium is $414. The total option cost invested is $165 + 414 = $579. All options expire on the next day.
Next, we calculate the returns for three hypothetical situations after expiration:
Bitcoin price drops to $73,000:
If the price of Bitcoin drops to $73,000, the $74,000 put option will have an intrinsic value of $1,000 ($74,000 - $73,000 = $1,000). After deducting the total premium of $579, the net profit is $1,000 - $579 = $421.
Bitcoin price rises to $77,500:
If the price of Bitcoin rises to $77,500, the $76,000 call option will have an intrinsic value of $1,500 ($77,500 - $76,000 = $1,500). After deducting the $579 option premium, the net profit is $1,500 - $579 = $921.
Bitcoin price remains unchanged ($75,500):
If the Bitcoin price is still $75,500 at expiration, both the put and call options will have no intrinsic value, meaning neither option will be exercised. The investor will lose the entire premium, or $579 in cost.
As you can see, this strategy is less expensive because the strike prices of the two options are different. The option fee is lower than the long-short synchronization strategy, which is suitable for 100 U Ares, but the corresponding volatility required is large to make a profit. If the price fails to reach the strike price at both ends, investors may face option fee losses. The larger the strike price gap, the greater the price volatility required to make a profit.
3. Covered Call
The covered call option strategy is to sell a call option while holding the spot asset in order to obtain additional income when the market is less volatile or rising moderately. If the price does not reach the strike price, the investor can keep the spot and earn the option premium; if the price exceeds the strike price, the spot will be sold at the strike price to lock in the profit. This strategy is suitable for the market to rise moderately or go sideways, and is particularly suitable for long-term investors who hope to obtain additional income from spot positions.
Assume that an investor holds one Bitcoin, and the current price is $75,500. The investor decides to sell a call option with an exercise price of $76,500. According to OKXs option data, the option premium is $263. In this way, the investor earns an additional income of $263 by selling the call option. All options expire on the next day.
Next, we calculate the benefits in three cases:
Bitcoin price remains unchanged ($75,500):
If the Bitcoin price is still $75,500 at expiration, which is lower than the strike price of $76,500, the call option will not be exercised, and the investor can continue to hold Bitcoin and receive the option premium income of $263. Therefore, the total profit is $263.
Bitcoin price drops to $75,000:
If the price of Bitcoin falls to $75,000 at expiration, which is also below the strike price of $76,500, the call option will not be exercised, the investor still holds Bitcoin, and receives the option premium of $263. The total profit is still $263.
Bitcoin price rises to $77,000:
If the Bitcoin price rises to $77,000 at expiration, exceeding the strike price of $76,500, the call option will be executed and the investor will need to sell Bitcoin at the strike price of $76,500. The investor will eventually receive $76,500 in sales revenue and $263 in option fees, with a total revenue of $76,500 + 263 = $76,763. If Bitcoin is repurchased at this time, there will be a loss of several hundred dollars.
The advantage of this strategy is that investors can obtain additional income (i.e., option premium) by selling call options, while continuing to retain spot positions and obtain potential upside gains when the market price does not exceed the strike price. However, if the price rises sharply above the strike price, investors must sell the spot at the strike price and may miss out on higher upside gains. Overall, this strategy is suitable for investors who want to obtain stable returns.
4. Synthetic Futures
The synthetic futures strategy forms a position similar to holding spot by buying a call option and selling a put option at the same time . The synthetic futures strategy can realize potential gains in volatile markets without directly holding spot.
Lets look at an example of real data: According to OKXs spot and options data, the current price of Bitcoin is around $75,500. Investors adopt a synthetic futures strategy by buying a call option with a strike price of $75,500, with an option premium of $718, and selling a put option with a strike price of $75,500, with an option premium income of $492. In this way, the investors net expenditure is $718 - 492 = $226. All options expire tomorrow.
Next, we calculate the benefits in three cases:
Bitcoin price rises to $77,000:
If the price of Bitcoin rises to $77,000, the $75,500 call option will have an intrinsic value of $1,500 ($77,000 - $75,500 = $1,500). After deducting the $226 option premium, the net profit is $1,500 - $226 = $1,274.
Bitcoin price drops to $74,000:
If the price of Bitcoin falls to $74,000, the $75,500 put option sold will have an intrinsic value of $1,500 (75,500 - 74,000 = $1,500). Since the investor is the seller of the put option, he or she will bear this loss, plus the initial outlay of $226, for a net loss of $1,500 + 226 = $1,726.
Bitcoin price remains unchanged ($75,500):
If the Bitcoin price is still $75,500 at expiration, both the call and put options will have no intrinsic value, meaning that neither option will be exercised. The investor will lose a net premium of $226.
As you can see, this strategy is suitable for investors who are in a volatile market and want to achieve similar positions without holding spot, but they need to have a better grasp of the price trend. Once it falls, the risk is unlimited; but if it rises, the potential gains will also be very large.
Summarize
These four strategies have their own advantages and disadvantages, and their applicable scenarios are also different. The long-short synchronization strategy and the long-short straddle strategy are both suitable for situations where large fluctuations are expected but the direction is unclear, and the losses of both are limited to the option premium, not unlimited. For example, during the recent election and the monthly interest rate announcement date, buying and selling options with short expiration dates may find profit opportunities from fluctuations. However, if the market price fluctuates only slightly, both strategies will result in option premium losses.
Relatively speaking, the long-short synchronous strategy has a higher cost but lower volatility requirements; while the long-short straddle strategy has a lower cost but requires a larger volatility to make a profit.
Covered call options are suitable for situations where the market rises moderately or remains flat, and investors can obtain additional income by selling options. However, if the price rises sharply, investors need to sell the spot at the strike price, which may miss out on potential higher returns. This strategy will not result in unlimited losses, but it will limit investors potential gains.
Synthetic futures strategies are suitable for markets with high volatility, especially when you want to use options to create a position effect similar to spot. This strategy may result in unlimited losses, especially when selling put options. If the market price falls sharply, investors will need to bear the corresponding losses.
Taken together, these four strategies provide different options when the market is volatile and uncertain. Investors can choose appropriate strategies based on market expectations and risk tolerance to maximize returns or control risks.
