This is How ETH Option Traders Can Yield Profit With Ethereum Proof-of-Stake Transition

Author: Sohrab Khawas

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    While Ethereum prices see a climb back above the $3k level, the second-largest crypto by market cap’s much-awaited move from proof-of-work (PoW) to proof-of-stake (PoS) mining has been delayed yet again.

    Ethereum’s Merge To Occur Before 2022

    On April 13, Tim Beiko, an Ethereum developer stated that the merge will not happen in June, but in a few months as there is no confirmed date yet. He adds that they are definitely in the final chapter of Proof of Work on Ethereum.

    An automated increase in mining difficulty that is designed to make PoW mining less attractive will be activated around May. This activity known as the “difficulty bomb” will gradually make blocks unbearable and in turn force the upgrade towards a proof-of-stake (PoS) network.

    This news will create an opportunity for the one who bets on the efficiencies and potential gains to go faster and cheaper transactions though it is having a negative effect on Ethereum’s price. 

    Hence, pro traders are most likely to go for options trading strategies known as long butterfly. It is proved that by trading multiple call (buy) options for the same expiry date, 3.2 times more gains can be achieved. 

    One thing that is to be noted is all options have expiry dates and the asset’s price surge should happen during the said period.

    Cut Down Your Loss With This Call Option Expiring On Sep 22

    The long butterfly strategy requires a short position using the $5,000 call options. Hence, to initiate the implementation, the investor should buy 14 Ether call options with a $3,500 strike parallelly selling 21 contracts of the $5000 call. However, to finalize the trade, one should buy 8 ETH contracts of $7000 call options to avoid any losses above the said level.

    This strategy is said to yield profit with any result between $3,770 (up 28%) and $7,000 (up 139%). For instance, a 40% increase in price hitting at $4,112 will result in a 1.1 ETH gain.

    On the flip side if the price drops below $3,500 on Sept22, the maximum loss will be 0.99 ETH. Hence, the long butterfly is likely to see a gain of 3.2 times larger than the maximum loss.

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