Happy New Year, and welcome back to our weekly options analysis series.

As we continue to monitor market dynamics, Bitcoin (BTC) has fallen below the $100,000 mark and is under pressure from multiple macroeconomic factors. Notably, President Trump's recent statements regarding tariffs on Canada and Mexico have heightened market uncertainty. Although the implementation of the tariffs has been delayed by a month, there is still a possibility they could take effect in the future, further suppressing Bitcoin prices.

Meanwhile, our Arthur Hayes holds a bearish view on Bitcoin, believing that various macro risks and policy uncertainties will weaken market sentiment and could drive BTC lower. Based on these considerations, this article will discuss how to navigate this volatility through options.

In this article, we will introduce an options trading idea that can profit in a slightly bearish market environment; as long as Bitcoin remains above $83,000, you can achieve breakeven or better returns. We will analyze the trading structure in detail, explore different profit scenarios, and highlight the key risks to consider.

Let's get started.

Market Environment: Emerging Multiple Risks

1. Political and Fiscal Uncertainty

Has Trump's crypto commitment faded?

After the "Trump trade" frenzy subsided, traders are looking for the president to take concrete actions in the crypto space. One of the most notable promises was to establish a so-called "Bitcoin reserve," but specific details have yet to be announced; congressional approval will also be a significant hurdle. So far, the White House has not provided any timeline or formal policy commitment.

The dynamics between Trump and the Federal Reserve

The intertwining of the president's policy agenda and the Federal Reserve's monetary policy has brought more uncertainty. If political factors force the Fed to take (or delay) further tightening measures, the risk premium for holding Bitcoin may increase. Policy-driven market changes remain a key factor to watch.

2. Macroeconomic and Monetary Policy Headwinds

Slowing fiat currency creation

Major central banks, including those in the U.S., China, and Japan, are scaling back their aggressive money-printing policies. The reduction in liquidity means that the upward momentum for risk assets like Bitcoin is relatively weakened. Hayes warns that without new fiat injections, even if market sentiment remains bullish, a significant correction could be on the horizon.

Rising 10-year Treasury yields

If U.S. Treasury yields approach the 5-6% range, it could trigger a "mini financial crisis." As yields rise, investors may flee risk assets in search of safer returns, which could further lead to a sell-off in Bitcoin.

3. Potential Vulnerabilities in the Financial System

Constraints in the banking and repo markets

Hayes points out that strict balance sheet rules like Basel III, combined with high debt levels, are putting immense pressure on the traditional financial system. Banks have very limited capacity to purchase more Treasuries through repurchase agreements (repos). Once these limits are reached, forced liquidations could spread, accelerating market declines, including Bitcoin.

Trading Strategy: Long Put Ladder

Strategy Objective

This strategy aims to profit from a mild pullback in Bitcoin prices while keeping losses contained if prices remain stable or even rise. If you expect Bitcoin not to crash significantly but may experience a short-term decline, this strategy is quite suitable.

Specific Trading Structure

● Sell 1 Bitcoin put option, strike price: $88,000, expiring on March 28

● Sell 1 Bitcoin put option, strike price: $95,000, expiring on March 28

● Buy 1 Bitcoin put option, strike price: $100,000, expiring on March 28

(As of February 5, 3:05 HKT, Bitcoin was priced at approximately $97,523.)

Why is this strategy viable?

• Limited upside risk
  By selling two put options at lower strike prices and buying one put option at a higher strike price, you can collect premiums to offset the cost of buying the put option. As long as Bitcoin's price does not plummet far below the strike prices of the sold put options, potential losses will be somewhat limited.

• Profit in a controlled pullback
  If Bitcoin's price declines moderately, falling below the strike price of the bought put option but remaining above the strike prices of the sold put options, the value of the put options you hold will increase, while you can also retain the premiums collected from the sold put options, resulting in a considerable profit.

Scenarios and Profit Analysis

● Scenario A: Bitcoin slightly declines but remains above $83,000
The $100,000 put option you bought will gain in value, while you can retain the premiums from the $88,000 and $95,000 put options. This range typically yields a decent net profit.

● Scenario B: Bitcoin significantly drops below $83,000
With a sharp price decline, the two sold put options will start to incur significant losses. However, the $100,000 put option will still provide some hedge. Risk management is crucial, as a deep price drop could lead to substantial losses.

● Scenario C: Bitcoin remains flat or rises
The $100,000 put option will depreciate, but the sold put options may expire worthless, or their premiums may shrink significantly, allowing you to still benefit from the retained premiums. Overall, in a flat to rising price environment, you may achieve a small profit.

Risks and Considerations

• Downside risk
  If Bitcoin sharply drops below $83,000, even though the $100,000 put option you hold can provide some hedge, the losses could still be quite substantial.

• Time decay and volatility
  Options pricing is highly sensitive to implied volatility. If implied volatility decreases, the values of both bought and sold options will be affected.

• Choice of strike prices and timing
  The selection of strike prices and expiration dates is crucial. Strike prices that are too close or too far can limit potential profit margins or expose you to greater risks.

Conclusion

Currently, Bitcoin hovers below the $100,000 mark, while macro uncertainty remains prominent—from U.S. tariff policies to the Federal Reserve's monetary direction, all contributing to a cautious short-term market. Arthur Hayes predicts that Bitcoin still has room to decline, but options provide you with more flexible hedging and profit opportunities.

As mentioned, the Long Put Ladder strategy is a way to profit during mild market pullbacks while keeping the risk of price increases within acceptable limits. However, before employing this strategy, you need to fully understand the risk exposures at various price levels and adjust according to your risk preferences and market expectations. Generally, in-depth research and necessary professional consultation are crucial for successfully implementing this strategy.

For more market insights, please continue to follow our weekly options analysis series. Wishing you successful trading!

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