Happy New Year, and welcome back to our weekly options analysis series.
As we continue to monitor market dynamics, Bitcoin (BTC) has fallen below the $100,000 mark and is under pressure from multiple macroeconomic factors. Notably, President Trump’s recent announcement of tariffs on Canada and Mexico has heightened market uncertainty. While the implementation of the tariffs has been delayed by a month, there is still a chance that they will take effect in the future, further weighing on Bitcoin prices.
Meanwhile, our Arthur Hayes is bearish on Bitcoin, arguing that various macro risks and policy uncertainties will weaken market sentiment and could push BTC lower. Based on these considerations, this article will discuss how to deal with this volatility through options.
In this article, we’ll walk you through an options trade idea that can profit in a slightly bearish market environment; as long as Bitcoin stays above $83,000, you can break even or better. We’ll break down the trade structure, explore different payoff scenarios, and highlight the key risks to consider.
Let’s get started.
Market environment: multiple risks continue to emerge
1. Political and fiscal uncertainty
Trumps Crypto Pledge Dead?
After the Trump deal craze faded, traders are looking forward to the presidents actual actions in the crypto space. One of the most anticipated promises is to establish a so-called Bitcoin reserve, but no specific details have been announced yet; congressional approval will also be a major obstacle. So far, the White House has not given any timetable or formal policy commitments.
Trump and the Fed
The interweaving of the president’s policy agenda and the Fed’s monetary policy creates more uncertainty. If political factors force the Fed to take (or delay) further tightening measures, the risk premium of holding Bitcoin may increase. Policy-driven market changes remain a key factor to watch.
2. Macroeconomic and monetary policy headwinds
Fiat money creation slows down
Major central banks including the United States, China and Japan are scaling back their aggressive money printing policies. Reduced liquidity means that risk assets such as Bitcoin have relatively weaker upward momentum. Hayes warned that without new fiat currency injections, even if market sentiment remains bullish, it may face a significant correction.
10-year Treasury yields rise
If U.S. Treasury yields move closer to the 5-6% range, it could trigger a mini financial crisis. As yields rise, investors may withdraw from risky assets in search of safer returns, which could further trigger a sell-off in Bitcoin.
3. Potential vulnerabilities in the financial system
Banking and repo market restrictions
Hayes pointed out that strict balance sheet rules such as Basel III, combined with high debt levels, are putting tremendous pressure on the traditional financial system. Banks have limited ability to buy more Treasury bonds through repurchase agreements (repo). Once these limits are hit, forced liquidations may spread, accelerating the decline of markets including Bitcoin.
Trading Strategy: Long Put Ladder
Strategic Goals
This strategy aims to profit when Bitcoin price experiences a mild pullback and limit losses to a smaller range when the price remains stable or even rises. This strategy is more suitable if you expect Bitcoin not to plummet sharply, but may fall back in the short term.
Specific transaction structure
● Sell 1 Bitcoin put option, strike price: $88,000, expires on March 28
● Sell 1 Bitcoin put option, strike price: $95,000, expires on March 28
● Buy 1 Bitcoin put option, strike price: $100,000, expires on March 28
(As of 3:05 HKT on February 5, the price of Bitcoin was approximately $97,523.)
Why does this strategy work?
Limited upside risk
By selling two put options at a lower strike price and buying one put option at a higher strike price, you can collect premiums to offset the cost of buying the put options. As long as the price of Bitcoin does not plummet far below the strike price of the sold put options, the potential loss will be limited.Profiting on controlled pullbacks
If the price of Bitcoin falls moderately, falling below the strike price of your long put option, but remains above the strike price of your short put option, the value of the put option you hold will increase, while you can also retain the premium collected from the short put option, thereby realizing a relatively substantial profit.
Scenario and benefit analysis
● Scenario A: Bitcoin falls slightly but remains above $83,000
The $100,000 put you bought will gain value, and you will also keep the premiums from the $88,000 and $95,000 puts. This is usually a good net profit.
● Scenario B: Bitcoin falls sharply below $83,000
As prices drop sharply, the two put options you sold begin to incur large losses. However, the $100,000 put options still provide you with partial hedge. Manage your risk carefully, as deep dives in prices can result in significant losses.
● Scenario C: Bitcoin moves sideways or rises
$100,000 The put option goes down in value, but the put option you sold may expire worthless or the premium may shrink significantly, and you still benefit from the retained premium. Overall, you may make a small profit in an environment where prices are flat to rising.
Risks and precautions
Downside risks
If Bitcoin were to fall sharply below $83,000, your losses could be substantial, even though your $100,000 put option would provide partial hedge.Time decay and volatility
Option pricing is highly sensitive to implied volatility. If implied volatility falls, the value of both long and short options will be affected.Strike price and timing
The choice of strike price and expiration date is crucial. A strike price that is too close or too far away may limit potential profits or expose you to greater risk.
Summarize
Currently, Bitcoin is hovering below the $100,000 mark, and macro uncertainty remains prominent - from US tariff policies to the Federal Reserves monetary policy, the short-term market is particularly cautious. Arthur Hayes predicts that Bitcoin still has room to fall, but options provide you with more flexible hedging and profit-making means.
As mentioned above, the Long Put Ladder is a strategy that can profit from a mild market correction while keeping the risk of price increases within an acceptable range. However, before using this strategy, you need to fully understand the risk exposure of each price range and adjust it according to your own risk appetite and market expectations. Generally speaking, in-depth research and necessary professional consultation are essential to the successful use of this strategy.
For more market insights, stay tuned to our weekly options analysis series. Happy trading!
