Research Firm Favors Bitcoin ‘Covered Strangle’ Strategy to Enhance Portfolio Yield by 17%

10x Research recommends selling out-of-the-money (OTM) call and put options on Bitcoin while keeping the cryptocurrency in the spot market.

Called the hidden strangle strategy, it will provide a 17% return on top of the upside from holding the spot market.

Bitcoin {{BTC}} investors looking to generate extra income in addition to their holdings in the spot market should consider setting up an “implicit strangle” options strategy, research firm 10X, which has an impeccable track record of predicting market trends, said Monday.

The ‘covert strangle’ strategy involves holding the underlying asset in the spot market and simultaneously selling and selling an out-of-the-money (OTM) call option at levels above the underlying asset’s going market rate (known as a strike in option lingo). An OTM strikes below the spot market price of the underlying asset.

The premium from selling/shorting the call option or protecting the counterparty from price increases and selling the put or insurance against downtrends represents the extra return.

10x proposes selling a $100,000 strike call, which is 50% above BTC’s current market price, and a $50,000 strike call, both expiring in December 2024, while holding the cryptocurrency in the spot market.

Markus Thielen, founder of 10x, said, “Our favorite strategy is to buy Bitcoin Spot, sell a 100,000 strike call, and sell a 50,000 strike put expiring in December 2024. Selling the call can return 11% and selling the put can return 6%. ” Research said it detailed the proposal in a client note on Monday.

“Therefore, this strategy gives us a 17% downside cushion or 17% more returns depending on where BTC closes in December, plus we will capture any positive (or negative) impacts for Bitcoin,” Thielen added.

This strategy is preferred when the market outlook is bullish, but by keeping implied volatility, or investors’ expectations of price turbulence, low, the uptrend is expected to emerge gradually. In such cases, options, especially OTM call and put options, lose value faster as expiration approaches, making money for sellers.

Although the strategy is attractive, it is no longer risk-free and requires high risk tolerance. This is because the risk is leveraged below the level at which the put option was sold (in this case, $50,000).

“Below the lower strike price, both long the stock and short the put incur losses, and as a result the percentage loss is twice as large as it would be for a covered call position [buy spot = sell OTM call] alone,” Fidelity said in a “veiled strangulation” statement.

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In other words, 10x’s strategy is for those who believe that Bitcoin’s bull market will proceed slowly and corrections (if any) will not cause prices to fall below $50,000. CoinDesk data shows that, as of press time, Bitcoin changed hands at $67,170, representing a 58% annual gain.

Many analysts, including Thielen and Arthur Hayes, former CEO of crypto exchange BitMEX, expect a slow rise.