The stock market can provide valuable insight into potential Bitcoin (BTC) price movements as a major potential trigger is expected this month.
Earnings numbers for the second quarter are expected this month
In particular, July’s second quarter earnings figures are expected from some of the world’s largest companies, including:
- UnitedHealth, Citigroup and JPMorgan on July 14;
- Bank of America and Morgan Stanley on July 18;
- Tesla, Google, Apple, Meta, Microsoft and Amazon before July 27th.
The S&P 500 companies have a combined market capitalization of $36.5 trillion. Therefore, it makes sense to expect a positive impact on bitcoin price when the earnings season shows moderate growth.
In other words, as the likelihood of a looming recession decreases, investor demand for risky assets increases.
Given the level of uncertainty, leverage should be avoided
Traders calling for a global economic slowdown will stand a chance of winning if these companies fail to deliver earnings growth, further adding to the uncertainty in economies. Governments rely heavily on taxes, both corporate and consumer, so a weak earnings season poses a serious threat.
Related topics: How to financially prepare for a recession
Investors fear corporate profitability could fall amid unprecedented monetary tightening by the US Federal Reserve and macroeconomic concerns. With continued inflation, companies are being forced to downsize and adopt cost-cutting strategies.
Nonetheless, the US economy has shown resilience, as shown by the latest retail sales growth of 0.3% mom in May, while economists had expected a slowdown. Retail results showed that falling oil prices may allow consumers to spend more money on other goods.
Such a scenario explains why professional traders use the bullish “Iron Condor” strategy to maximize profits with limited risk when Bitcoin trades above $31,550 in July.
Using Bitcoin options for a bullish but hedged strategy
Buying Bitcoin futures pays off in bull markets, but the problem is dealing with liquidations when the BTC price falls. For this reason, professional traders use options strategies to maximize their profits and limit their losses.
Related Topics: Crypto Derivatives 101: A Beginner’s Guide to Crypto Futures, Crypto Options and Perpetual Contracts
The Skewed Iron Condor strategy can generate gains above $31,550 by the end of July while limiting losses if the expiry price is below $31,000.
That’s worth mentioning Bitcoin traded at $30,520 when this model was priced.
Bitcoin Options: Iron Condor strategy returns. Source: Deribit Position Builder
The call option gives its holder the right to purchase an asset at a fixed price in the future. For this privilege, the buyer pays a fee in advance, the so-called premium.
Meanwhile, the 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 a put offers the opportunity to participate in rising prices.
The iron condor is to sell the call and put options at the same expiration price and date. The example above was created using the July 28 contracts, but can be adjusted for other timeframes.
Related: Major US banks pass severe recession stress test with a passing grade.
Modest 3% bitcoin price rise needed for profits
As shown above, the target profit range is between $31,550 (3% above current price) and $38,000 (24.5% above current price).
To initiate the trade, the investor must short (sell) 1.5 contracts of the $33,000 call option and three contracts of the $33,000 put option. Then they have to repeat the process for the $36,000 options, using the same expiry month.
Buying 4.8 contracts of the $31,000 put option is also required to protect against a potential downside. After all, one needs to buy 3.7 contracts of the $38,000 call option to limit losses above this level.
The net profit of this strategy is 0.206 BTC ($6,290 at current prices) between $33,000 and $36,000. However, it remains above 0.087 BTC ($2,655 at current prices) when Bitcoin trades in the $32,150 and $37,150 range.
The investment required to open this Skewed Iron Condor strategy is the maximum loss (0.087 BTC or $2,655) incurred if Bitcoin trades below $31,000 on July 28.
The upside of this trade is that it covers a wide target range while generating a potential return of 238% versus the potential loss. Essentially, it offers a leverage opportunity without the liquidation risks typical of futures contracts.
This article does not contain any investment advice or recommendations. Any investment and trading venture involves risk, and readers should do their own research when making their decision.
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