TL;DR
- A Bitcoin options trader has implemented a “butterfly” strategy to hedge against a potential drop in the BTC price.
- This strategy involves buying put options with specific strike prices and selling put options at a lower price to partially finance the operation.
- The trade, exceeding $20 million. Reflects the sophistication of the BTC options market and traders’ pursuit to capitalize on price fluctuations.
A Bitcoin options trader has made a significant bet to protect against the possibility of a decline in the BTC price. This strategy, known as a “butterfly,” involves a complex set of operations. Designed to mitigate the risk of loss in case the BTC price drops to a specific level.
In this particular trade, the trader bought 100 lots of put options for March 29 with strike prices of $50,000 and $43,000. These put options give the trader the right. But not the obligation, to sell Bitcoin at these prices on the expiration date. To partially finance this purchase, the trader sold 200 lots of put options with a strike price of $47,000, the level at which they are betting that the Bitcoin price will not fall below.
Options block trades have been very hot lately, and a Bitcoin butterfly spread with a notional value of $20 million was just traded.
This single block trade was a newly opened options position betting that Bitcoin will fall slightly before 29March24, with $47,000 as the maximum… pic.twitter.com/TAX7EuRYyy— Greeks.live (@GreeksLive) February 20, 2024
The total cost of this “butterfly” strategy exceeded $20 million. Indicating the magnitude of the bet made by the trader. This trade was conducted through the cryptocurrency block trading service Greeks.Live. Which specializes in facilitating high-volume transactions typically made by institutional investors.
More “Butterflies” Likely to Be Seen in the Bitcoin Market
The key to this strategy lies in the fact that the trader expects the Bitcoin price to fall to $47,000 or higher in the short term. But not below that level. If the Bitcoin price drops to $47,000 on the expiration date. The trader will achieve the maximum possible profit from this trade. However, if the price falls below $47,000, the trader will face limited and predefined losses.
The profit diagram of this strategy resembles that of a butterfly. With maximum profit in the center and fixed losses if prices move away from the selected exercise levels.
This trade reflects the sophistication and complexity of the Bitcoin options market. Where traders seek to capitalize on price fluctuations for profit or hedge against losses. We are likely to see more trades of this kind, driven by the growing participation of institutional investors and increased liquidity in BTC options markets.
