As the second quarter earnings season approaches, professional traders can hedge their Bitcoin bets using the iron condor options strategy.

With major potential triggers expected this month, the stock market could provide valuable insights into Bitcoin’s (BTC) possible price action.

Second-quarter earnings data will be released this month

Notably, July is expected to see the release of second-quarter earnings data from some of the world’s largest companies, including:

  • UnitedHealth, Citigroup and JPMorgan Chase, July 14;

  • Bank of America and Morgan Stanley, July 18;

  • Before July 27, Tesla, Google, Apple, Meta, Microsoft, and Amazon.

The market capitalization of the S&P 500 companies totals $36.5 trillion, so it makes sense to expect Bitcoin prices to be positively impacted if earnings season remains modest.

In other words, if the likelihood of an imminent recession decreases, investor appetite for risky assets will increase.

Leverage should be avoided given the level of uncertainty

Traders who have been calling for a global slowdown would have a chance to profit if these companies fail to deliver earnings growth, further adding to economic uncertainty. Governments rely heavily on tax revenue from businesses and consumers, so a weak earnings season poses a serious threat.

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Investors are concerned that corporate profitability could decline due to the Federal Reserve's unprecedented tight monetary policy and macroeconomic concerns. Due to persistent inflation, companies are forced to reduce hiring and adopt cost-cutting strategies.

Still, the U.S. economy is showing resilience, as evidenced by a 0.3% month-over-month increase in retail sales in May, while economists had expected a decline. The retail results suggest that lower oil prices may allow consumers to spend more on other goods.

This situation explains why professional traders have been using the bullish “Iron Condor” strategy to maximize gains with limited risk when Bitcoin was trading above $31,550 in July.

A bullish but hedged strategy using Bitcoin options

Buying Bitcoin futures during a bull market can bring returns, but the problem is how to deal with liquidations when the price of Bitcoin drops. This is why professional traders use options strategies to maximize gains and limit losses.

Related: Crypto Derivatives 101: A Beginner’s Guide to Crypto Futures, Crypto Options, and Perpetual Contracts

The tilted iron condor strategy could generate profits above $31,550 by the end of July while limiting losses if expiration prices fall below $31,000.

Notably, when the model was priced, Bitcoin was trading at $30,520.

A call option gives its holder the right to buy an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee called a premium.

Meanwhile, a put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling a put option provides the opportunity for price appreciation.

An Iron Condor involves selling a call and a put option at the same expiration price and date. The above example is set up using the July 28 contract, but can be adjusted for other time frames.

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A modest 3% increase in Bitcoin price is needed to make a profit

As mentioned above, the target profit range is $31,550 (3% above the current price) to $38,000 (24.5% above the current price).

To start the trade, the investor needs to short (sell) 1.5 $33,000 call option contracts and 3 $33,000 put option contracts. They must then repeat the process for the $36,000 options using the same expiration month.

It would also take 4.8 put option contracts worth $31,000 to protect against the eventual decline. Finally, it would take 3.7 call option contracts worth $38,000 to limit losses above that level.

The strategy’s net profit peaked at 0.206 BTC ($6,290 at current prices) between $33,000 and $36,000, but would still be higher at 0.087 BTC ($2,655 at current prices) if Bitcoin traded in the $32,150 to $37,150 range.

The investment required to start this tilted iron condor strategy is the maximum loss that would occur if Bitcoin trades below $31,000 on July 28 (0.087 BTC, or $2,655).

The benefit of this trade is covering a wide target area while providing a potential return of 238% relative to potential loss. Essentially, it provides leverage opportunities without the liquidation risk typical of futures contracts.