The stock market can provide valuable insight into possible Bitcoin (BTC) price action, with major potential triggers expected this month.
Second-quarter earnings data due this month
Notably, some of the world’s largest companies are expected to report second-quarter earnings numbers in July, including:
- UnitedHealth, Citigroup and JP Morgan, July 14.
- Bank of America and Morgan Stanley, 18 July.
- Before July 27th, Tesla, Google, Apple, Meta, Microsoft, and Amazon.
With the combined market capitalization of S&P 500 companies at $36.5 trillion, it makes sense to expect a positive impact on bitcoin prices if earnings season sustains modest growth.
In other words, if the likelihood of an imminent recession decreases, investors’ appetite for risky assets increases.
Leverage should be avoided given the degree of uncertainty
If the companies fail to post earnings growth, traders calling for a slowing global economy will have an opportunity to profit, further adding to economic uncertainty. The government relies heavily on tax revenues from businesses and consumers, so a weak earnings season poses a serious threat.
Related: How to Prepare Financially for a Recession
Investors are worried that corporate profitability could decline due to the Federal Reserve’s unprecedented tightening of monetary policy and macroeconomic concerns. Due to persistent inflation, businesses have been forced to reduce hiring and adopt cost-cutting strategies.
Still, the U.S. economy has shown resilience, as evidenced by retail sales rising 0.3% month-on-month in the latest May, while economists expect a decline in retail sales. The retail results suggested that lower oil prices may have consumers spending more on other goods.
This situation explains why professional traders use the bullish “iron condor” strategy to maximize returns with limited risk as Bitcoin trades above $31,550 in July.
A Bullish But Hedged Strategy Using Bitcoin Options
Buying bitcoin futures during a bull market pays off, but the question is what to do with liquidation when the price of bitcoin falls. This is why professional traders use options strategies to maximize gains and limit losses.
Related: Crypto Derivatives 101: A Beginner’s Guide to Crypto Futures, Crypto Options, and Perpetual Contracts
The tilted iron condor strategy can generate profits above $31,550 by the end of July while limiting losses if the price expires below $31,000.
Notably, when the model was priced, Bitcoin was trading at $30,520.
A call option gives its holder the right to purchase an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee called a premium.
At the same time, a put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling put options offers an opportunity for the price to rise.
An iron condor consists of selling a call option and a put option with the same expiration price and date. The example above was set up using the July 28 contract, but can be adjusted for other timeframes.
related: Major U.S. banks pass ‘severe recession’ stress test
Bitcoin price needs a modest 3% jump to turn a profit
As mentioned above, the target profit range is $31,550 (3% above current price) to $38,000 (24.5% above current price).
To begin trading, an investor must short (sell) 1.5 $33,000 call option contracts and 3 $33,000 put option contracts. They must then repeat the process on the $36,000 option using the same expiration month.
An additional 4.8 put option contracts worth $31,000 would need to be purchased to prevent an eventual decline. Finally, 3.7 $38,000 calls would need to be purchased to limit losses above that level.
The strategy’s net profit peaked at 0.206 BTC ($6,290 at current prices) between $33,000 and $36,000, but was still above 0.087 BTC ($6,290 at current prices) if Bitcoin traded in the $32,150 to $37,150 range. The current price is calculated at $2,655).
The investment required to start this tilted iron condor strategy is the maximum loss (0.087 BTC, or $2,655) that would have occurred had Bitcoin traded below $31,000 on July 28.
The benefit of this trade is that it covers a broad target area while offering a potential return of 238% relative to potential losses. Essentially, it provides leverage opportunities without the liquidation risk typical of futures contracts.
This article does not contain investment advice or advice. Every investment and transaction involves risk, and readers should do their own research when making a decision.