Original author: BitMEX
Welcome back to our weekly Options Trading Strategy Analysis. This time, we focus on the release of the US Consumer Price Index (CPI) and its potential impact on Bitcoin. We will explore the current macro backdrop, Bitcoin’s recent price action, and how to use options trading strategies to capture opportunities in elevated implied volatility.
Market Environment
Bitcoins volatility has been notable in recent weeks. After hitting an all-time high of around $110,000 in December 2024, Bitcoin pulled back to around $90,000 on Monday. The pullback was partly due to a surge in U.S. Treasury yields and market concerns about tighter monetary policy by the Federal Reserve. However, Bitcoin quickly rebounded to around $97,000, significantly outperforming the stock market and showing Bitcoins resilience ahead of the upcoming CPI report.
Looking back at the CPI data in November, it rose by 0.3% month-on-month and 2.7% year-on-year, mainly driven by housing and food costs, while energy prices remained stable overall. Although inflationary pressures still exist, the rebound in Bitcoin shows that the demand behind it is still strong, even if the market remains highly vigilant about new inflation data.
CPI Release: A Key Macro Catalyst
Today (January 15), the United States will release CPI data for December 2024. The market generally expects a year-on-year increase of around 2.9%. If this expectation is revised upward, the Federal Reserve may be further inclined to maintain or raise interest rates in 2025. This is not good for Bitcoin, which prefers a liquid environment. Higher interest rates tend to suppress risk appetite and may put pressure on Bitcoin prices in the short term.
Potential support from Trumps inauguration
Shortly after the CPI is released, the United States will usher in a major event on January 20: Trumps inauguration. The new governments pro-crypto stance may offset the negative impact of high inflation data to a certain extent. If the CPI data exceeds expectations and causes a short-term correction in Bitcoin, the positive expectations released by the inauguration may provide support, thereby limiting the further downside space for Bitcoin.
Trading strategy: Sell put option
Taking into account multiple factors in the macro and crypto fields, the most feasible solution is to sell Bitcoin put options before the CPI is released. Major economic events often lead to an increase in implied volatility, pushing up option premiums. When you expect price fluctuations to be relatively controllable, or believe that strong support levels can limit downside, it is attractive to collect higher option premiums.
Strategic Points
1. Market resilience: Bitcoin’s recent return to $97,000 reflects strong market support and investor confidence, despite the uncertainty in the external environment.
2. Limited downside: If the market turns pessimistic after the CPI disclosure, Bitcoin will still have strong support around $90,000, and the upcoming Trump inauguration will also inject more positive expectations into the market.
3. Higher premium: Implied volatility usually rises before macro events, which raises option premiums and helps option sellers obtain higher premiums.
Specific suggestion: Sell 1 BTC put option with an expiration date of January 16 and a strike price of $94,000, and receive an option premium of $250 (per contract).
Current BTC price: 97,088 USD (UTC+8, January 15, 12:23)
When Bitcoin was trading around $97,000, a strike price of $94,000 was a reasonable price to buy. Selling a put option with an expiration date of January 16 and a strike price of $94,000 would earn a premium of $250 per contract. Taking this premium into account, the breakeven point would be around $93,750.
Profitability scenario
1. Breakeven: The breakeven point for this strategy is around $93,750.
2. Profit Cap: If the Bitcoin price is above $94,000 at expiration, the option will expire worthless and the seller will earn the entire $250 premium.
Advantages of this option strategy
1. Profit acquisition: Selling a put option can collect premiums and bring immediate income.
2. Opportunity to buy BTC at a lower price: If the option is exercised, the seller can buy Bitcoin at the strike price. The actual purchase price will also deduct the $250 premium received, which is equivalent to bottom fishing.
3. Utilization of market stability: If the BTC price is higher than the strike price at expiration, the option becomes invalid and the seller retains the full premium without having to buy the underlying asset.
Risk Considerations
1. Forced buying obligation: If the Bitcoin price is lower than the strike price at expiration, the seller must buy Bitcoin at the strike price and may face a paper loss.
2. Theoretical unlimited downside risk: If the price of Bitcoin falls below $94,000 before expiration and continues to fall, the greater the downward trend, the greater the loss will be (the $250 premium received can only partially offset the loss).
Overall, the strategy of selling put options can obtain rich premiums in the current high volatility and high premium market environment, while also taking advantage of the existence of multiple potential bullish factors (market support and Trumps inauguration). However, the execution of the strategy still needs to pay close attention to the upcoming CPI data and subsequent macroeconomic policy signals, and do corresponding risk management.
