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Renowned for accurate market predictions, research firm 10x Research recommends Bitcoin (BTC) investors consider the “covered strangle” option strategy to earn extra income while holding the largest cryptocurrency in the spot market. This involves selling out-of-the-money (OTM) call and put options while holding the underlying asset.
Covered Strangle Strategy
The covered strangle strategy requires holding Bitcoin in the spot market and simultaneously selling an OTM call option at a strike price above the current market rate and an OTM put option at a strike price below the current market rate. The premiums from selling these options provide additional income.
10x Research suggests selling a $100,000 call option and a $50,000 put option, both expiring in December 2024. According to 10x Research founder Markus Thielen, selling the call option can yield 11%, and selling the put option can yield 6%, resulting in a total return of 17% in addition to the gains from holding Bitcoin in the spot market.
This strategy is ideal when the market outlook is bullish but the uptrend is expected to progress slowly. Under such conditions, implied volatility remains low, causing OTM call and put options to lose value more rapidly as expiration approaches, benefiting sellers.
Risk Assessment: Investors Should Be Cautious
While the covered strangle strategy can be profitable, it is not without risks and requires a high tolerance for risk. The primary risk is if the put option’s strike price of $50,000 is breached. If Bitcoin’s price falls below this level, both the spot position and the short put option incur losses, potentially doubling the loss percentage compared to a standalone covered strangle long position.
10x Research’s strategy is for those who believe Bitcoin’s bull market will progress slowly and any corrections will not push prices below $50,000. Currently, Bitcoin is trading around $67,000, representing a 58% gain since the beginning of the year. It is worth noting that analysts, including Thielen and former BitMEX CEO Arthur Hayes, expect a slow and steady rise in Bitcoin’s price.
