If you’re waiting to buy BTC when the price dips, here’s how to make the wait more rewarding
Many of us are hoping to buy some crypto and make a profit once the price grows. But now that one Bitcoin is worth over $50,000, and one ether is over $1,600, few are willing to take the risk buying these expensive assets.
But would you buy Bitcoin for $40,000? Sure, you’ll say, but who knows when the price will fall so low again.
The good news is that there’s a clever trick that could let you do that — and make a profit in the process.
Let’s say you’re willing to buy some BTC if its price goes down to $40k. You can just sit and wait — or you can sell a ‘put’ option with the execution price of $40k and the expiration date of September 24 for 0.1 BTC. This means that you’re taking on the obligation to buy BTC for $40,000 (your target price) if upon September 24 its price is $40K or lower.
The best part is you’re going to earn an additional premium of 0.1 BTC on this deal (the price you’re selling the option for), which will be yours regardless of what happens to the price of Bitcoin. The premium is paid to you by the derivatives exchange that conducts the trade, and the only requirement to initiate the trade is that you have the necessary margin in your account with them.
To summarize: if the price of BTC increases, you won’t buy it and you won’t profit from the price change, but then again, you weren’t going to buy Bitcoin at the current high price anyway. But you’ll still get the 0.1 BTC premium for the sold option, or $5,000 in today’s prices.
But if the price does fall to $40,000 or below, you’ll buy your Bitcoin at that price (just like you originally wanted) AND get your 0.1 BTC premium. At that new price, the premium will be worth $4,000 — not a bad extra profit on a deal that you wanted to make regardless (that is, buy Bitcoin at $40k).
Finally, the riskiest scenario is that BTC will be worth significantly less than $40K on the date that you’re obliged to buy it for that amount. This could be a bitter pill to swallow when the time comes, but look at this way: If you’d bought at $40K without making use of the put option, you’d still have suffered the loss in value and without the premium from the exchange to slightly soften that loss.
This strategy is called put option sale, but there are others. Options can be used on their own or in complex combinations with different prices and expiry dates. The key point is that options allow you to achieve an optimum risk/profit ratio and make a profit in just about any situation, even when the price doesn’t change.
Finally, if you want to know more about using options in anticipation of BTC rising rather than dropping, then check out our separate guide here.
