Turning Market Uncertainty into Profit, How to Win When Others Panic
Hello everyone,
As we enter September, we're heading into a time of high volatility in the markets. You've probably heard the saying, "Sell in May and go away, stay away till St. Leger Day." The St. Leger Day mentioned here refers to one of the oldest horse racing festivals in England, held on September 14th. You might have also heard of the "September effect," known for stock markets typically showing their worst performance in September.
So, September is either an important time to buy declining assets to make use of idle money, or to establish sell positions that have a high probability of being profitable.
However, we also have some significant bullish news ahead of us, such as the release of former Binance CEO CZ from prison, the first interest rate cut in 4 years, and subsequent discussions about interest rate cuts for the rest of the year. We have both highly bullish news and highly bearish expectations ahead of us. So, what are we going to do in this situation?
If we buy an asset, a 30% drop wouldn't surprise us, but it's also quite possible that the world will generally overcome the crisis, leading to an increase in money supply and risk appetite. In other words, buying an asset is one problem, not buying is another.
If we take a position in Perpetual or Futures trading, the probability of getting stopped out is high, and the lack of confidence after a few attempts is an additional drawback.
When you buy an asset, holding onto it during a downturn and then selling too early when it rises again due to that psychology are common side effects.
Have you ever wondered what the big players, the whales in the market, do in such situations? How do they position themselves? Well, I'm showing you the best example of it right here.
The trading method we'll use is buy call and buy put, which I've mentioned in my previous articles.
It's important to know that ETH volatility is around 55-60%.
This shouldn't be interpreted as it will go 60% up or down. For example, a 60% volatility could also occur with a 10% decrease, 30% increase, 5% decrease, and 15% increase.
It might be more sensible to buy our contracts at the ATM level, but for the sake of experimenting, we can also buy from further away from the current price because it's cheaper.
We can strengthen our strategy and increase its potential by looking at possible drops and rises from a technical perspective. Now, I'll explain through an example.
The current $ETH price is around $2450. We can set up this trade for any time frame you want, but we'll do it for the September 27th contract now. For about 5% below and above, our contracts are 2300P $96 and 2600C $114. Our total cost will be $210.
If the price goes below 2300 in September, our put contract will profit, if it goes above 2600, our call contract will profit.
Our maximum loss will occur if the price stays at the level where we bought the contracts. However, our maximum loss cannot exceed $210, which we paid for the contracts.
I'd like to mention two strategies you can use here:
Let's assume the price is $2000 on September 4th. This means the 2300p will be $300 in profit. If we think this correction is sufficient and believe the price will now go up, we can close this contract. Since our contract is ITM, the contract price will probably be around $400-500. Thus, we've made about $200 profit, which is about 100% profit against our total cost of $210. And we'll still have the September 27th 2600 call contract, which will still have value even though the price has dropped, as the Expiration Date is far away.
Another method is to open a perpetual trade for the amount of ETH you bought in the contract, which will lock in your profit. Using the same price example, if the contract were to end today, we would have made $300 profit for 1 ETH contract. If we open a long position for 1 ETH in perpetual trades, the profit of the contract will be fixed at that price. If the price continues to fall, the contract will profit; if it rises, our long position will profit. Of course, factors like funding fees need to be considered carefully in this situation.
If the price continues to fall, the contract price will likely profit much more than the loss of the long position.
As you can see, we're trading both up and down without any stop or risk. And if the price goes up after such a drop, our call contract will also gain value. When the price recovers to 2200, you can also buy a shorter-term 2300 contract. If it reaches our 2600 call contract, the 2300C contract will have made $300 profit. You can consider such situations depending on your risk appetite.
This strategy is called Long Straddle. If you want to examine it further, you can do more research.
Areas of use:
- In situations with high price impact such as expected news, events, and occurrences,
- You can reduce your cost and increase your profit by buying a shorter-term contract, for example, a 1-week contract.
- In times when the price has been accumulating for a while and is likely to break out in one direction,
- You can use it to minimize losses if there's a drop and maximize profits if there's a rise in your spot products.
Advantages:
- The ability to profit regardless of which direction it goes, as it's a non-directional trade,
- Both the risk and the gain are at an optimal level
Disadvantages:
- High premium cost due to buying two contracts
- More limited profit potential compared to a one-way trade, as our cost is higher.
Overall, when we look at it, trading with such methods makes your trade safer, with known risk and optimal profit potential against this risk, which makes this method valuable. Of course, you're not limited to just these; you can do this trade with different dates as well. You can try different strategies like buying a call contract for the end of the month and a put contract for 2 weeks.
That's all for this article today. See you in the next one.
If you have any questions or strategies you use, you can write them in the comments, and we can develop a strategy together.
#Volatility #september #OptionsTrading #StrategicTrading #WhalesWinning $BTC
