The Secret Weapon for Bitcoin Investors in a Bull Run: Covered Strangle

• Bitcoin investors offered strategy for yield
• Covered strangle boosts returns in bull market
• Works best in markets with low volatility

10x Research, a financial firm known for its prescient market predictions, has proposed a strategy for Bitcoin investors seeking to augment their returns in the ongoing bull market. The firm recommends that Bitcoin holders consider implementing a “ covered strangle ” options strategy alongside their existing spot market holdings.

In essence, the covered strangle strategy involves selling an Out-of-The-Money (OTM) call option – a contract granting the buyer the right, but not the obligation, to purchase Bitcoin at a predetermined price (strike price) above the current market price – and an OTM put option – a contract granting the buyer the right, but not the obligation, to sell Bitcoin at a strike price below the current market price.

Crucially, this strategy generates additional income for investors through the premiums received for selling both the call and put options.

In a client note released on Monday, Markus Thielen, founder of 10x Research, outlined his firm’s preferred approach: buying Bitcoin spot, selling a $100,000 strike call, and selling a $50,000 strike put, all with a December 2024 expiry. Thielen explained that selling the call could generate an estimated 11% profit, while the put option could generate an estimated 6% profit.

Moreover, Thielen emphasized that the covered strangle strategy offers investors a two-pronged approach. According to him, the strategy could provide either a 17% downside protection or a 17% increase in potential yield, depending on Bitcoin’s closing price in December.

The covered strangle strategy is typically favored by investors who hold a bullish view of the market. However, it is most effective in gradually rising markets with low implied volatility. Under these conditions, options sellers benefit as the expiry date approaches and the options lose value.

Bitcoin was trading at $66,940 at the time of writing, representing a 1.23% gain on the day. The leading cryptocurrency’s bullish outlook appears to remain intact, having rebounded from support at $61,000 earlier this week.