Matrixport, a crypto services provider, suggests that Bitcoin bulls should consider using call options.

Matrixport, a crypto services provider, suggests that Bitcoin bulls should consider using call options.

Optimizing Returns in the Blockchain Industry with Bullish Call Options

The blockchain industry is known for its volatility, with prices fluctuating wildly and unpredictably. However, recent market conditions have seen a significant decrease in volatility, prompting crypto traders to explore alternative strategies to optimize their returns. Crypto services provider Matrixport suggests that rotating money out of bitcoin (BTC) and into bullish call options tied to the cryptocurrency could be a viable strategy in the current low volatility environment.

A Strategy for Low Volatility

Typically, during the summer months, the crypto market experiences a decline in trading volumes and volatility. The decreased volatility has made option prices cheaper, making bullish call options an attractive choice for investors looking to maximize their profits. By replacing bitcoin spot positions with call options, traders can lock in the year-to-date gains for bitcoin while still allowing themselves to participate in any potential upside rally.

Matrixport, a firm known for its bullish stance on bitcoin since late 2022, suggests that by utilizing call options, investors can optimize their returns while reducing their exposure to bitcoin’s price fluctuations.

Understanding Call Options

To fully understand the strategy proposed by Matrixport, it is essential to grasp the concept of call options. Call options grant traders the right, but not the obligation, to buy bitcoin at a predetermined price within a specific timeframe. On the other hand, put options provide the right to sell bitcoin. Investors who purchase call options are implicitly bullish on the market, hoping for an increase in the underlying asset’s value.

The price of options is influenced by several factors, including the option’s strike price, time to expiration, interest rates, and implied volatility. Implied volatility refers to expectations for price turbulence over a specific period and plays a crucial role in determining the cost of options. When volatility is low, option prices tend to be cheaper, making it an opportune time to consider buying options.

The Impact of Low Volatility

Low volatility in the crypto market indicates that asset prices are moving closer to their average prices. This phenomenon has a positive effect on the prices of options, making them comparatively cheaper. Traders tend to prefer buying options when volatility is unusually low.

Bitcoin’s 30-day realized volatility, a measure of historical volatility, is currently at an annualized 28%, its lowest level since January. The BitVol Index, which measures expected price turbulence in the crypto market over four weeks, recently reached a multi-year low of 40.47. This contrasts with the high volatility experienced in late 2022 when options appeared pricier.

Additionally, a positive correlation has emerged this year between implied volatility and bitcoin’s price. If bitcoin’s rally resumes, call options holders may experience substantial gains on a smaller initial investment.

Implementing the Strategy

Matrixport’s suggestion to clients involves capitalizing on bitcoin’s year-to-date gain of 77% and utilizing the freed-up capital to purchase an at-the-money (ATM) call option with a notional value of 3% every month. This approach provides consistent exposure to bitcoin’s upside potential while safeguarding the profits accumulated thus far.

By buying call options, traders gain control over the same amount of bitcoin as they would by purchasing the underlying asset. However, the upfront cost is significantly lower, as call options require paying a premium to the seller for protection against bullish market moves. An at-the-money call option has a strike price close to the going market rate of the underlying security. In this case, calls with strikes near bitcoin’s current market price of $29,180 would be considered at-the-money.

Matrixport’s strategy aims to ensure continuous exposure to bitcoin’s potential upside while utilizing the gains made this year. By purchasing monthly call options with a notional exposure of 3%, investors can still achieve a net gain of approximately 62% at the end of the year, even if bitcoin prices retrace.

Conclusion

Optimizing returns in the blockchain industry requires a deep understanding of market dynamics, volatility, and risk management. With low volatility prevailing in the current market, Matrixport suggests that rotating money into bullish call options tied to bitcoin can be a lucrative strategy. By capitalizing on the decreased option prices during periods of low volatility, investors can mitigate risk and potentially achieve outsized gains. Understanding the mechanics of options and implementing a systematic approach can help investors navigate the ever-changing landscape of the blockchain industry.

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