Buy the Dip With Limited Risk on Bybit During This Bear Market

If you’re waiting patiently for the start of the next crypto bull market, you're not alone. Bear markets are frustrating for traders. But identifying when a bear market ends and a new bull market begins can reap huge rewards. And at Bybit, your rewards will get multiplied with options events like the Merry Market Makers Program.

Before we dive into how to benefit when prices rise, it's important to understand what a bear market is. Simply put, it's a prolonged period of downward price movements in the market. Bear markets are not new to crypto. We've seen several over the years. All of which offered investors a great opportunity to buy ahead of the bull runs that followed.

So when you feel the time is right to buy the dip, here are three options strategies you should consider:

1. Cash-Secured Put

Suitable for: All knowledge levels

Risk level: Low — as long as you intend to buy the underlying crypto asset

When to use: You want to buy a crypto asset at a discount

Greeks: Time-decay works in your favor (positive Theta). Benefits from falling implied

volatility (negative Vega)

So what exactly is a cash-secured put?

It’s a simple options strategy where you sell a put option on a cryptocurrency that you want to own, but only if the price drops to a certain level.

Here’s how it works: First, you select the “strike price” of the put option you wish to sell, which is the same price you're willing to buy the crypto asset. Next, choose the contract's expiration date.

In return for selling the put, you receive a premium from the buyer, which varies depending on the length of the contract and how close the strike price is to the current asset price. Longer-dated options have higher premiums than shorter-dated options. And put options nearer to the current market price have higher premiums than those further below.

If the crypto asset is below the strike price at expiration, you buy the underlying asset. And if the crypto is above the strike price when the contract expires, you keep the premium as profit.

One thing to keep in mind is that with this strategy, you must want to own the crypto at the strike price, and have enough cash to buy it if the price is below the strike price at expiration. That's why it's called "cash-secured."

Source: The Options Playbook

Example:

BTC is trading at $20,000, and you're keen to buy it if the price dips below $18,000. You might set up a cash-secured put expiring in 30 days, that looks something like this.

Sell 0.50 BTC $18,000 put option, receiving a premium of $200 ($200 x 0.5 = $100 credit).

At expiration, there are two outcomes:

1. BTC is above $18,000, the option expires with zero value (out of the money), and you keep the $100 net credit.
2. BTC is below $18,000, the option expires in the money, and you are liable for the difference between the strike price and the options settlement price. The maximum loss is the difference between $18,000 and the settlement price (short put strike - settlement price + premium received - transaction costs).

Max profit: Premium received

Max loss: Significant

Breakeven point: Short put strike - premium received

You should note that Bybit's crypto options contracts are cash-settled and exercised automatically if they expire in the money, meaning no physical transfer of BTC takes place. Instead, at expiration, your account is credited or debited the profit or loss realized on the option trade.

To complete this strategy, if the short put expires in the money, you must buy spot BTC using the cash you set aside for the purchase. Luckily, Bybit currently offers zero fees for all spot trading pairs.

Overall, the cash-secured put option strategy is useful for generating income and potentially buying crypto at a discount. Just make sure you fully understand the risks before implementing this strategy in your portfolio.

2. Bull Put Spread

Suitable for: Beginners to intermediate

Risk level: Low

When to use: Mildly bullish

Greeks: Benefits from time-decay (positive Theta), and falling implied volatility (negative Vega)

A bull-put credit spread is a slightly more advanced options strategy that involves trading two options on the same underlying asset with the same expiration date.

Here's a rundown of how it works:

First, you sell a put option at a strike price below the current price of the underlying asset. Then, buy a put below the strike price you sold.

The short put is closer to the underlying asset, so it will have a higher premium than the long put, meaning you’ll receive an upfront payment for making the trade. The difference between the premium you receive for the short put and the premium you pay for the long put is your net credit, which is also the maximum potential profit.

If the underlying asset is above the strike price of the short put option at expiration, you'll keep the net credit as profit. You incur a loss if the underlying asset is below the short put by more than the received net credit. The maximum loss occurs if the underlying asset is below the long put at expiration.

Source: The Options Playbook

Example:

Sell 0.50 BTC $19,000 put option, receiving a premium of $500 (0.50 x $500 = credit of $250)

Buy 0.50 BTC $18,500 put option, paying a premium of $225 (0.50 X $225 = $112.50)

Max profit: $112.50 (net credit)

Max loss: $387.50 (short put strike - long put strike + net credit)

Breakeven point: $18,887.50 (short put strike - net credit)

At expiration there are three outcomes:

1. BTC is above $19,000. Both options expire worthless and you achieve the maximum profit (net credit).
2. BTC is between $19,000 and $18,500. The short put expires in the money, and the long put expires worthless. In this event, you profit above the breakeven price and lose money below ($19,000 - settlement price + premium received).
3. BTC is below $18,500. Both options expire in the money and you incur the maximum potential loss ($19,000 - $18,500 + premium received).

3. Synthetic Long

Suitable for: Intermediate to advanced traders

Risk level: High

When to use: Very bullish

Greeks: Neutral Theta and neutral Vega

The synthetic long is a high-risk, high-reward bullish options strategy that combines a long call and a short put at the same strike price to help you profit from a rise in the price of an underlying asset without actually owning it.

To set up this strategy, buy an at-the-money call option at the same price as the underlying asset, and sell an at-the-money put option with the same expiration date to mimic a long position in the underlying crypto asset.

The synthetic long has unlimited upside profit potential above the strike price of the long call and considerable loss potential below the short put. For this reason, it's best suited to intermediate-level options traders with high risk tolerance.

The advantage of this strategy is that it requires less of your buying power than buying BTC outright.

Source: The Options Playbook

Example:

BTC is trading at $20,000, and you predict it will be above $20,000 in one month. Rather than buying BTC outright, you decide on the following low-cost synthetic long strategy, expiring in 30 days:

Buy 0.50 BTC $20,000 call option, for a premium of $500 (0.50 x $500 = $250 debit)

Sell 0.50 BTC $20,000 put, receiving a premium of $500 (0.50 x $500 = $250 credit)

Max profit: Unlimited

Max loss: Significant

Breakeven point: BTC price at the time of trade +/- cost.

In this example, the premium paid and the received premium are the same, meaning the cost of the trade is zero (+ transaction fees).

At expiration there are two outcomes:

1. BTC is above $20,000. You profit from the difference between the settlement price and the strike price (settlement price - strike price - transaction costs).
2. BTC is below $20,000. You lose the difference between $20,000 and the settlement price (strike price - settlement price - transaction costs).

Final Thoughts

With these three options strategies, you’ll be well-equipped to buy the dip with less risk in the bear market on the Bybit Options market and even turn a profit in times of volatility.

For beginners, using cash-secured put will help you get paid for buying crypto at a discount or making money if the dip doesn't materialize. The key to this strategy is selling a put option at a price you are happy to buy the underlying asset.

If you're looking for a low-risk bullish strategy with a high chance of profit that won't eat up your buying power, the bull put spread could be a perfect choice. To increase your chance of profit, choose strike prices you expect to expire worthless.

For advanced traders with a big appetite for risk, the synthetic long offers a flexible alternative to buying crypto outright. The beauty of this strategy is that you may even get paid for using it.