Bitcoin options strategy: How to trade July’s Q2 earnings

The stock market can offer valuable insights into possible Bitcoin (BTC $30,643) price movements, with a significant potential trigger expected this month.

Q2 earnings numbers due this month

Notably, Q2 earnings numbers are expected from some of the largest companies in the world in July, including:

• UnitedHealth, Citigroup and JPMorgan on July 14.

• Bank of America and Morgan Stanley on July 18.

• Tesla, Google, Apple, Meta, Microsoft and Amazon before July 27.

The S&P 500 companies account for an aggregate $36.5 trillion in market capitalization, so it makes sense to expect a positive impact on Bitcoin’s price if the earnings season sustains modest growth.

In other words, investors’ appetite for risk-on assets will increase if the odds of an imminent recession are reduced.

Leverage to be avoided given the level of uncertainty

Traders calling for a global economic slowdown will have a chance to profit if those companies fail to deliver earnings growth, further adding uncertainty to the economies. Governments rely heavily on taxes from companies and consumers, so a weak earnings season represents a serious threat.

Investors are concerned that companies’ profitability could decline due to the unprecedented tightening of monetary policy by the United States Federal Reserve and macroeconomic concerns. And thanks to persistent inflation, businesses are forced to reduce hiring and use cost-cutting strategies.

Still, the U.S. economy has displayed resilience, as evidenced by the latest 0.3% retail sales growth month-over-month in May, with economists expecting a decline. The retail results demonstrated that decreasing oil prices may be allowing consumers to spend more money on other goods.

Such a scenario explains why professional traders have used the bullish “iron condor” strategy to maximize gains with limited risk if Bitcoin trades above $31,550 in July.

Using Bitcoin options for a bullish but hedged strategy

Buying Bitcoin futures pays off during bull markets, but the issue lies in dealing with liquidations when BTC’s price drops. This is why professional traders use options strategies to maximize their gains and limit their losses.

The skewed iron condor strategy can yield profits above $31,550 by the end of July while limiting losses if the expiry price is below $31,000.

It is worth noting that Bitcoin traded at $30,520 when the pricing for this model took place.

Bitcoin options iron condor strategy returns. Source: Deribit Position Builder

The call option gives its holder the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium.

Meanwhile, the put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling a put offers exposure to the upside in prices.

The iron condor consists of selling the call and put options at the same expiry price and date. The above example has been set using the July 28 contracts, but it can be adapted for other timeframes.

Modest 3% Bitcoin price gain needed for profits

As depicted above, the target profit range is $31,550 (3% above the current price) to $38,000 (24.5% above the current price).

To initiate the trade, the investor must short (sell) 1.5 contracts of the $33,000 call option and three contracts of the $33,000 put option. Then, they must repeat the procedure for the $36,000 options, using the same expiry month.

Buying 4.8 contracts of the $31,000 put option to protect from an eventual downside is also required. Lastly, one needs to purchase 3.7 contracts of the $38,000 call option to limit losses above the level.

This strategy’s net profits peak at 0.206 BTC ($6,290 at current prices) between $33,000 and $36,000, but they remain above 0.087 BTC ($2,655 at current prices) if Bitcoin trades in the $32,150 and $37,150 range.

The investment required to open this skewed iron condor strategy is the maximum loss (0.087 BTC, or $2,655) which will occur if Bitcoin trades below $31,000 on July 28.

The benefit of this trade is that a wide target area is covered while providing a potential 238% return versus the potential loss. In essence, it provides a leverage opportunity without the liquidation risks typical of futures contracts.