Original author: BitMEX
Welcome to our Weekly Options Alpha series!
Bitcoin just took a big dive, down 10%. Your portfolio is in the red, and you might be wondering, “What should I do next? Should I panic, add to my position, or play it smart?”
Options strategies can help manage risk, take advantage of a possible rebound, or generate income. Here are five effective strategies for post-sell-off scenarios, with examples, profit and loss analysis, and scenario guidance.
(At the time of writing, February 26, 2025, 13:06 Hong Kong time, the BTC price is $88,584.)
1. If you are worried that Bitcoin will continue to fall in March… How to do it: Buy a protective put option (your insurance strategy)
Let’s say you’re holding Bitcoin at $89,000, but you’re losing sleep over the possibility that Bitcoin could drop to $75,000 in March. Don’t wait — hedge yourself! Buy a put option to lock in a floor price.
Example:
● Bitcoin price: $89,000
● Buy $85,000 put options (expiration date: March 28) with a premium of $3,000.
Why it works:
If Bitcoin crashes to $75,000:
● Your put option pays $10, 000 ($85, 000 - $75, 000).
● After deducting the $3,000 option premium, you have a net profit of $7,000. This money can be used to buy more Bitcoin at a very low price, or to cover your portfolio losses.
If Bitcoin rises to $100,000:
● You only lost $3,000 in option premium, but your spot position soared. For psychological comfort, this small price is worth it.
Worst case scenario: If Bitcoin stays around $89,000 or rises only slightly, the put option will be worthless, and you will lose the $3,000 premium, but your Bitcoin position may have increased in value. This fee is worth paying for the protection and peace of mind.
Summary: This is for investors who are bullish but worried about the market falling further. You dont want to sell your Bitcoin, but you need downside protection. Think of it as paying an insurance premium to ensure you can sleep soundly.
2. If you think Bitcoin will remain stable in the next few weeks... How to do it: Sell covered call options (cash out your boredom)
Let’s say you’re stuck with Bitcoin at $89,000 but don’t expect a big move anytime soon. Why not let the market pay you while you wait! Sell a call option to earn the premium.
Example:
● Bitcoin price: $89,000
● Sell a $95,000 call option (expiration date: March 28) for a premium of $2,600.
Why it works:
If Bitcoin remains at $89,000:
● You earned $2,600. That’s a 3% gain in 30 days doing nothing.
If Bitcoin rises to $100,000:
● You are still profitable:
○ Sell at $95,000 ($6,000 profit)
○ Keep the $2,600 option premium
○ Total profit is + $8,600.
Worst case scenario: Miss out on the gains above $95,000. But let’s be honest, after a sell-off, do you really expect a 20% gain in 30 days?
Bottom line: This is the “I’d take some free money” strategy. If you are slightly bullish on Bitcoin, or just want to reduce costs while holding a position, this is a perfect option.
3. If you think Bitcoin will bounce (but not too wildly)… How: Bull Call Spread (cheap participation in the bounce)
You think Bitcoin has been oversold and expect a 10-20% rally, but don’t want to take too much risk buying call options. Then, the bull call spread is a budget-friendly option.
Example:
● Buy $85, 000 call options at $7, 200 (expiration date: March 28).
● Sell $90, 000 call option at $4, 000 (expiration date: March 28).
● Net cost: $3,200.
Why it works:
If Bitcoin reaches $90,000:
● Maximum profit is $1,800 ($5,000 spread - $3,200 cost). This equates to a return of over 50%!
If Bitcoin remains below $85,000:
● You lose $3,200. But this is much less than if you had bought the naked option alone for $7,200.
The breakeven point is $88,200 — a 4.8% gain.
Summary: This is a strategy designed for cautious optimists. You dont expect Bitcoin to rise dramatically, just expect a small rebound. Less risk, sleep better.
4. If you are totally unsure about the direction of Bitcoin (but expect big moves)… How to do it: Long straddle (profit from chaos)
After a sell-off, Bitcoin could rebound sharply or continue to fall. If you are ready to bet on volatility, buying simultaneous call and put options is an option.
Example:
● Bitcoin price: $89,000
● Buy $88,000 call options and $88,000 put options (expiration date: March 28) for a total cost of $9,000.
Why it works:
If Bitcoin explodes to $100,000:
● The call option profit is $11,000, which means a net profit of $2,000 after deducting the $9,000 option premium.
If Bitcoin falls to $70,000:
● The put option profit is $19,000, and the net profit is $10,000 after deducting the $9,000 option premium.
Breakeven point: Bitcoin needs to move more than 10%. This is very possible after a sell-off.
Summary: This is the I dont care about direction, I only care about volatility strategy. Is the risk high? Yes. Is the reward high? Absolutely high - if you guess correctly.
5. If you think the sell-off is overreacted… How to: Sell put spreads (bet on stability)
You believe panic is driving the sell-off and that Bitcoin will stabilize or rebound. Sell the put spread, earn the premium, and clear the risk.
Example:
● Sell $85,000 put options for a premium of $2,500 (expiration date: March 28).
● Buy $80,000 put options for a premium of $1,500 (expiration date: March 28).
● Net income: $1,000.
Why it works:
If Bitcoin sustains above $85,000:
● You keep the $1,000 option premium. This is a 100% gain.
If Bitcoin falls to $80,000:
● You lose $5,000 ($85,000 - $80,000), but you keep the $1,000 option premium, so your maximum loss is $4,000.
Summarize:
This is the “smart contrarian” strategy. You earn the option premium by betting that the panic is only temporary. Just have cash ready in case you are forced to buy Bitcoin at $85,000.
Summary: Overview of options strategies after the Bitcoin sell-off
After a massive sell-off in Bitcoin, your trading decisions should be consistent with your expectations of future market movements. Here is a quick summary of the options strategies we mentioned, including their risk/reward profiles and when to use them:
Final summary:
Emotions run high after a sell-off, but smart traders are able to turn uncertainty into opportunity. The key is to assess your risk tolerance, market outlook, and time frame, then choose the right options strategy. Here’s how to think about it:
● If you are worried about another decline, buy a protective put option.
● If you think Bitcoin will go sideways, sell covered calls.
● If you expect a rebound, choose the Bull Call Spread.
● If you expect large volatility, choose a long-term straddle option.
● If you think the market is overreacting, choose to sell a put spread.
No strategy is foolproof, so always manage your risk and position. If you are unsure, start small, hedge well, and let the market verify your judgment.
