Here's how Ether options traders could prepare for the proof-of-stake migration

Ethereum's long-awaited transition distant from proof-of-work (PoW) mining has precocious suffered different hold and is expected to hap successful the 2nd fractional of 2022.

Ethereum developer Tim Beiko stated connected April 13 that "it won't beryllium June, but apt successful the fewer months after. No steadfast day yet, but we're decidedly successful the last section of PoW connected Ethereum."

An automated summation successful mining trouble designed to marque PoW mining little charismatic is acceptable to go progressive astir May. Known arsenic the "difficulty bomb," it volition yet marque blocks "unbearably slow," forcing the upgrade to a proof-of-stake (PoS) network.

Such quality mightiness person negatively impacted Ether's (ETH) price, but it creates an immense accidental for those betting connected the efficiencies and imaginable gains of faster and cheaper transactions.

Even though 1 could usage futures contracts to leverage their agelong positions, they hazard being liquidated if a abrupt antagonistic terms determination occurs up of the web upgrade. Consequently, pro traders volition apt opt for an options trading strategy similar the "long butterfly."

By trading aggregate telephone (buy) options for the aforesaid expiry date, 1 tin execute gains 3.2 times higher than the imaginable loss. An options strategy allows a trader to nett from the upside portion limiting losses.

It is important to retrieve that each options person a acceptable expiry date, and arsenic a result, the asset's terms appreciation indispensable hap during the defined period.

Using telephone options to bounds the downside

Below are the expected returns utilizing Ether options for the Sept. 22 expiry, but this methodology tin besides beryllium applied utilizing antithetic clip frames. While the costs volition vary, the wide ratio volition not beryllium affected.

Profit / Loss estimate. Source: Deribit Position Builder

This telephone enactment gives the purchaser the close to get an asset, but the declaration seller receives (potential) antagonistic exposure. The "long butterfly" strategy requires a abbreviated presumption utilizing the $5,000 telephone option.

To initiate the execution, the capitalist buys 14 Ether telephone options with a $3,500 onslaught portion simultaneously selling 21 contracts of the $5,000 call. To finalize the trade, 1 would bargain 8 ETH contracts of the $7,000 telephone options to debar losses supra specified a level.

Derivatives exchanges terms contracts successful ETH and $2,937 was the terms erstwhile this strategy was quoted.

Trade ensures constricted downside with a imaginable 3.2 ETH gain

Using this strategy, immoderate result betwixt $3,770 (up 28%) and $7,000 (up 139%) yields a nett net — for example, a 40% terms summation to $4,112 results successful a 1.1 ETH gain.

Meanwhile, the maximum nonaccomplishment is 0.99 ETH if the terms is beneath $3,500 connected Sept. 22. Thus, the "long butterfly" is simply a imaginable summation of 3.2 times larger than the maximum loss.

Related: Altcoin Roundup: Analysts springiness their instrumentality connected the interaction of the Ethereum Merge delay

Overall, the commercialized yields a amended risk-to-reward result than leveraged futures trading, particularly erstwhile considering the constricted downside. It surely looks similar an charismatic stake for those expecting the PoW migration sometime implicit the adjacent 5 months.

It is worthy highlighting that the lone upfront interest required is 0.99 ETH, which is capable to screen the maximum loss.

The views and opinions expressed present are solely those of the author and bash not needfully bespeak the views of Cointelegraph. Every concern and trading determination involves risk. You should behaviour your ain probe erstwhile making a decision.