A collapsing stock market can make lucrative chances for Bitcoin traders
New York City: Several of the largest corporations in the world, including the electric car manufacturer Tesla on October 18, the software behemoths Microsoft and Meta on October 24, Apple and Amazon on October 26, and Google on October 30, are anticipated to announce their 2Q profits in October. There is now a chance of an even more severe global economic slump, and disappointing earnings might increase the concern.
Investors worry that company profitability will begin to decline given the extraordinary extent of the US Federal Reserve’s tightening and growing macroeconomic uncertainty. Additionally, enduring inflation continues to pressure companies to reduce recruiting and implement cost-cutting strategies.
For American-listed firms, a stronger dollar is especially detrimental since it raises the cost of their goods abroad and has a negative effect on their bottom line due to the decreased income from international sales. For instance, Google’s revenue growth is predicted to be less than 10%, down from a 40% rise in 2021.
If the earnings season fails to maintain a small gain, suggesting that the stock market should continue to underperform, crypto investors predict some of those bets to join Bitcoin (BTC). The firms that make up the S&P 500 account for an aggregate $32.9 trillion in value.
The link between Bitcoin and stocks puts pressure on traders, while on the other hand, inflation worries may highlight BTC’s scarcity. For those who are banking on a BTC price surge, this may provide a huge opportunity, but initiating positions would also need considerable prudence.
Risk-averse traders might leverage their long holdings using futures contracts, but they also run the risk of having their bets liquidated if a sharp decline in price happens before the corporate results schedule. Professional traders are thus more inclined to use options trading tactics like the “long butterfly.”
Trading many call (buy) options with the same expiration date allows traders to realize profits three times greater than the risk of a loss. A trader may prevent losses while benefiting from the upside with this options technique.
It’s crucial to keep in mind that every option has a predetermined expiration date, so the asset’s price growth must take place within the given time frame. The investor purchases 13 Bitcoin call options with a $20,000 strike price and sells 24 contracts of the $23,000 call in order to start the execution. To complete the transaction and prevent losses over this point, one would purchase 10.5 BTC contracts of the $26,000 call options.
When this method was mentioned, the price in BTC, which is how derivatives exchanges price contracts, was $19,222. Overall, given the restricted downside, the transaction has a superior risk-to-reward ratio than leveraged futures trading. For those who anticipate worsening business circumstances for listed businesses, it definitely seems appealing.
It is noteworthy that the only upfront payment necessary is 0.46 Bitcoin, which is sufficient to cover the maximum loss.