BitMEX: Best option strategy after a big sell-off

Source: BitMEX

Welcome to our weekly options Alpha series:

Bitcoin has just fallen sharply, with a drop of 10%. Your portfolio is losing money and you may think, "What should you do next? Should you panic, increase your position, or do it smartly?"

Option strategies can help manage risks, take advantage of possible rebounds, or generate revenue. Here are five effective strategies for post-sell scenarios, accompanied by examples, profit and loss analysis, and situational guidance.

(At the time of writing this article, February 26, 2025, 13:06 Hong Kong time, the price of BTC is US$88,584.)

1. If you are worried that Bitcoin will continue to decline in March... Practice: Buy protective put options (your insurance strategy)

Suppose you have a Bitcoin price of $89,000, but you have trouble falling asleep because Bitcoin may fall to $75,000 in March. Don't wait - make a hedge for yourself! Buy a put option to lock in a reserve price.

Example:

• Bitcoin Price: $89,000
• Buy $85,000 put options (expiry date: March 28), and the option fee is $3,000.

Why it works:

If Bitcoin plummets to $75,000:

• Your put option pays $10,000 ($85,000 – $75,000).
• After deducting $3,000 in the option fee, you net $7,000. This money can be used to buy more bitcoins at extremely low prices or to make up for losses in your portfolio.

If Bitcoin rises to $100,000:

You only lose $3,000 in option fees, but your spot position soars. For psychological comfort, this small price is worth it.

The worst case scenario is: If Bitcoin maintains around $89,000 or only slightly up, then put options will expire and lose $3,000 in option fees, but your Bitcoin position may have increased. For protection and peace of mind, this fee is worth paying.

Summary: This is designed for investors who are bullish but are worried about further market declines. You don't want to sell Bitcoin, but you need downside protection. Treat it as a premium to ensure you can fall asleep peacefully.

2. If you think Bitcoin will remain stable in the next few weeks... Practice: Sell coverage call options (to cash out boring)

Suppose you are stuck on $89,000 in Bitcoin, but don't expect big markets in the near term. Then why not let the market pay you while waiting! Sell ​​call options to earn option fees.

Example:

• Bitcoin Price: $89,000
• Sell ​​a call option of $95,000 (expiration date: March 28) with the option fee of $2,600.

Why it works:

If Bitcoin remains at $89,000:

You earn $2,600. This is a 3% gain from doing nothing in 30 days.

If Bitcoin rises to $100,000:

You are still profitable:

• Sell ​​at $95,000 (profit of $6,000)
• Retain $2,600 option fee
• Total profit is +8,600 USD.

The worst case scenario is: Missing up to $95,000. But to be honest, after a sale, do you really expect a 20% increase in 30 days?

Summary: This is the "I am willing to collect some free money" strategy. If you're slightly bullish on Bitcoin or just want to reduce costs while holding positions, this is the perfect choice.

3. If you think Bitcoin will rebound (but not too crazy)… Practice: Bull market bull market is bullish (cheap participation in rebound)

You think Bitcoin has been oversold and is expected to rebound by 10-20%, but you don't want to take too much risk to buy call options. Then, the bull market bull market bull spread is a budget-friendly choice.

Example:

• Buy a call option of $85,000 for $7,200 (expiration date: March 28).
• Sell ​​a call option of $90,000 for $4,000 (expiration date: March 28).
• Net Cost: $3,200.

Why it works:

If Bitcoin rises to $90,000:

The big profit is $1,800 ($5,000 spread – $3,200 cost). This is equivalent to more than 50% of the return!

If Bitcoin stays below $85,000:

You lose $3,200. But that's much smaller than buying a $7,200 naked option alone.

The breakeven point was $88,200 – up 4.8%.

Summary: This is a strategy designed for cautious optimists. You don't expect a big rise in Bitcoin, you just expect a slight rebound. Less risk, sleep better.

4. If you are completely uncertain about the trend of Bitcoin (but expect big fluctuations)… Practice: Long-term cross-straight options (profit from chaos)

Bitcoin may rebound sharply or continue to decline after a sell-off. If you are ready to bet on volatility, buying simultaneous bullish and put options is an option.

Example:

• Bitcoin Price: $89,000
• Buy $88,000 call options and $88,000 put options (expiry date: March 28), with a total fee of $9,000.

Why it works:

If Bitcoin surges to $100,000:

Call options earned $11,000, and netted $2,000 after deducting $9,000 option fees.

If Bitcoin falls to $70,000:

Put options earn $19,000, and net profit of $10,000 after deducting $9,000 option fees.

Breakeven point: Bitcoin needs to fluctuate by more than 10%. This is very likely after the sell-off.

Summary: This is the strategy of "I don't care about direction, I only care about fluctuations." Is it risky? Yes. Is the reward big? Absolutely big-if you guessed it right.

5. If you think this sell-off is overreacted... Practice: Sell bearish spread (betting stability)

You think the panic led to this sell-off and Bitcoin will stabilize or rebound. Sell ​​bearish spreads, earn option fees, and clarify risks.

Example:

• Sell ​​$85,000 put option with the option fee of $2,500 (expiration date: March 28).
• Buy $80,000 put option, with the option fee of $1,500 (expiration date: March 28).
• Net Income: $1,000.

Why it works:

If Bitcoin remains above $85,000:

You keep a $1,000 option fee. This is a 100% profit.

If Bitcoin drops to $80,000:

You lose $5,000 ($85,000 – $80,000), but you keep the $1,000 option fee, so the maximum loss is $4,000.

Summarize:

This is a "smart reverse investor" strategy. You get the option fee by betting panic just temporarily. Just prepare your cash in case you are forced to buy Bitcoin for $85,000.

Summary: Overview of Options Strategy after Bitcoin Sell

After a large-scale sell-off in Bitcoin, your trading decisions should be consistent with your expectations for future market trends. Here is a quick summary of the options strategies we mentioned, including their risk/reward situations and applicable scenarios:

Final summary:

After a sell-off, sentiment is high, but smart traders are able to turn uncertainty into opportunities. The key is to evaluate your risk tolerance, market outlook and time frame, and then choose the right option strategy. Here is how to think:

• If you are worried about falling again, buy protective put options.
• If you think Bitcoin will be sideways, sell coverage call options.
• If you expect a rebound, choose a bull market to boost the spread.
• If you expect large fluctuations, choose long-term cross-straight options.
• If you think the market is overreacting, choose to sell the bearish spread.

No strategy is foolproof, so always manage risks and positions. If you are not sure, start with a small amount, make a good hedge and let the market verify your judgment.