10x Research: How to Increase Your Portfolio Return by 17%?

Author: Omkar Godbole, CoinDesk; Compiler: Wuzhu, Golden Finance

Summary

• 10x Research recommends selling out-of-the-money (OTM) call and put options tied to bitcoin while holding the cryptocurrency in the spot market.

• In addition to the upside from spot market holdings, the so-called covered strangle strategy will generate a 17% return.

Bitcoin (BTC) investors looking to earn additional income in addition to their spot market holdings should consider establishing a covered strangle strategy, 10X, a research firm with an impeccable record of predicting market trends, said on Monday.

The "covered straddle" strategy involves holding the underlying asset in the spot market while simultaneously selling an OTC call option at a level above the underlying asset's current market rate (called the strike price in options jargon), and selling an OTC put option at a strike price below the underlying spot market price.

The premiums received from selling/shorting calls, or protecting the counterparty from rising prices, and selling puts, or insurance against falling trends, represent additional income.

10x recommends selling a $100,000 strike call option (50% above BTC’s current market price) and a $50,000 strike put option (both expiring in December 2024), while holding crypto in the spot market.

“Our favorite strategy is to buy bitcoin spot, sell 100,000 strike calls, and sell 50,000 strike puts expiring in December 2024. The yield on the calls sold is 11%, and the yield on the puts sold is 6%,” 10x Research founder Markus Thielen said in a client note on Monday, detailing the recommendation.

“Thus, this strategy provides us with a 17% downside cushion or 17% additional yield, depending on the December BTC close, and we will capture all upside (or downside) movement in Bitcoin,” Thielen added.

This strategy is preferred when the market outlook is bullish but the uptrend is expected to unfold slowly, thus keeping implied volatility, or investors’ expectations of price swings, low. In this situation, options, especially out-of-the-money calls and puts, lose value faster as expiration approaches, making money for the seller.

While attractive, the strategy is not risky at the moment and requires a high risk tolerance. This is because the risk leverage is lower than the level of selling the puts, which in this case is $50,000.

“Below the lower strike price, both the long and short puts suffer losses, so the percentage loss is twice that of a separate covered short straddle call position (buy spot = sell OTM call),” Fidelity said in the report. An interpreter of a “covered stranglehold.”

In other words, 10x’s strategy is designed for those who believe that Bitcoin’s bull run will be slow and that a correction, if any, won’t see prices fall below $50,000. As of this writing, Bitcoin is trading at $67,170, up 58% year to date, according to CoinDesk data.

Several analysts, including Thielen and Arthur Hayes, former CEO of cryptocurrency exchange BitMEX, expect Bitcoin to slowly move higher.