Author: BitMEX
Welcome back to our weekly options trading strategy analysis. This issue will focus on the release of the US Consumer Price Index (CPI) and its potential impact on Bitcoin. We will explore the current macroeconomic backdrop, recent Bitcoin price movements, and how to leverage options trading strategies to capture the elevated implied volatility opportunities.
Market Environment
In recent weeks, Bitcoin's volatility has been very notable. After reaching a new all-time high of around $110,000 in December 2024, Bitcoin retreated to around $90,000 on Monday. This pullback was partly due to a surge in US Treasury yields and market concerns about the Federal Reserve adopting a more hawkish monetary policy. However, Bitcoin quickly rebounded to around $97,000, outperforming the stock market and demonstrating resilience ahead of the upcoming CPI report.
Reviewing the November CPI data, it rose 0.3% month-over-month and 2.7% year-over-year, driven primarily by housing and food costs, while energy prices remained relatively stable. Although inflationary pressures persist, Bitcoin's rebound suggests robust underlying demand, even as the market remains highly vigilant about the new inflation data.
CPI Release: A Key Macroeconomic Catalyst
On January 15th, the US will release the December 2024 CPI data. The market generally expects the year-over-year increase to be around 2.9%. If this expectation is revised upward, the Federal Reserve may further lean towards maintaining or raising interest rates in 2025. This would not be favorable for Bitcoin, which prefers a more liquidity-friendly environment, as higher interest rates tend to dampen risk appetite and could exert short-term pressure on Bitcoin prices.
Potential Support from the Trump Inauguration
Shortly after the CPI release, on January 20th, the United States will witness a significant event: the Trump inauguration. The new administration's "pro-crypto" stance may partially offset the negative impact of higher-than-expected inflation data. If the CPI data triggers a short-term Bitcoin pullback, the positive expectations surrounding the inauguration ceremony may provide support and limit further downside for Bitcoin.
Trading Strategy: Selling Put Options
Considering the multiple factors in the macroeconomic and crypto realms, a viable option at the moment is to sell Bitcoin put options before the CPI release. Major economic events often lead to an increase in implied volatility, driving up option premiums. When you expect price volatility to be relatively manageable, or believe that strong support levels can limit the downside, collecting higher option premiums becomes attractive.
Key Points of the Strategy
1. Market Resilience: Bitcoin's recent ability to rebound to $97,000 reflects strong market support and investor confidence, despite the prevailing uncertainties.
2. Limited Downside: If the market turns pessimistic after the CPI release, Bitcoin has strong support around $90,000, and the upcoming Trump inauguration is expected to inject more positive sentiment.
3. Higher Premiums: Implied volatility typically rises ahead of macroeconomic events, boosting option premiums, which benefits option sellers in capturing higher option fees.
Specific Recommendation: Sell 1 BTC put option expiring on January 16th with a strike price of $94,000, collecting a $250 (per contract) option premium.
With BTC trading around $97,088 (UTC+8, January 15th, 12:23), setting the strike price at $94,000 is relatively reasonable. By selling the put option expiring on January 16th with a $94,000 strike price, you can collect a $250 premium per contract. Considering this option premium, the breakeven point is around $93,750.
Profit Scenarios
1. Breakeven: The strategy's breakeven point is around $93,750.
2. Maximum Profit: If the Bitcoin price is above $94,000 at expiration, the option will expire worthless, and the seller can keep the full $250 premium.
Advantages of this Option Strategy
1. Income Generation: Selling put options generates option premiums, providing immediate income.
2. Opportunity to Buy BTC at a Lower Price: If the option is exercised, the seller can buy Bitcoin at the strike price, effectively "buying the dips" after deducting the $250 premium received.
3. Leveraging Market Stability: If the Bitcoin price is above the strike price at expiration, the option will expire worthless, and the seller can keep the full premium without having to buy the underlying asset.
Risk Considerations
1. Obligation to Buy: If the Bitcoin price is below the strike price at expiration, the seller is obligated to buy Bitcoin at the strike price, potentially facing paper losses.
2. Unlimited Downside Risk: If the Bitcoin price falls below $94,000 before expiration and continues to decline, the potential loss can grow larger (the $250 premium collected can only partially offset the loss).
Overall, the put option selling strategy can generate attractive premiums in the current high-volatility, high-premium market environment, while also leveraging the potential positive factors (market support levels and the Trump inauguration). However, the strategy's execution still requires close monitoring of the upcoming CPI data and subsequent macroeconomic policy signals, as well as appropriate risk management.
