There are times when Bitcoin investors expect prices to go down and are willing to do business in such conditions. To successfully take advantage of a fall in the price of Bitcoin and make gains, certain strategies need to be employed. This is because bearish trading with Bitcoin is not something an investor engages in without having a good plan to follow.
Selecting the best strategy to employ requires that a Bitcoin Investor have a timeframe in mind for the price to drop as well as an idea of what the price should be at the given period. A few of the employable strategies include:
1. Long Put Strategy: This is typically employed by novice Bitcoin traders who are still learning the ropes. The idea is for such traders to buy put options believing that at the end of a given period, the price of the Bitcoin invested in will drop below the striking price. Though this option has a limited lifespan, it offers novice traders a more convenient option over the use of short-selling strategies that require for stock to be borrowed in order to be short.
The gain which an investor makes using this approach is the difference between the price paid for the option and the striking price of the Bitcoin purchased. The downside to taking up this approach is the fact that it becomes worthless if at the expiration date the price of Bitcoin fails to drop below the strike price.
2. Option Spread Strategy: As Bitcoin traders grow in experience, they begin to factor in the fact that the price of stock does not always fall sharply. While they are still working on the belief that the price of Bitcoin will fall, these Bitcoin investors have determined a target price and taken advantage of different bear spread options as a tactic to reduce the risks they take.
To achieve this, they can make use of either one of the vertical or horizontal and diagonal approaches. Whichever option is taken, the aim is to cap the maximum profit that can be made while enjoying the lower cost of employing the bear spread strategy.
3. Premium Collection Options Strategy: As long as options do not go up at the end of a given period, Bitcoin investors who employ this strategy are expected to make money. Such investors do not own the underlying stock but only involve themselves in the writing of options such as the Out of The Money strategy. The idea behind the use of this tactic is that even when the option expires worthless, the Bitcoin investor is assured of pocketing the premiums. The beauty of this approach is that maximum gain equals premiums.
The small upside protection which it offers bearish traders makes it a good strategy to employ. This process can continuously be repeated provided that the market price of Bitcoin remains flat or continues dropping. The downside to this option is that loss can be unlimited since there is no limit to how high price can rise when it rebounds.
Bearish trading with Bitcoin comes with its pros and cons regardless of the approach taken by an investor. The most important aspect is to gain insight into the direction of the market in order to apply the best strategy that suits prevailing market conditions.