Passive Income from a Runaway (Buy Side)

There is another option that you have, and this involves earning a premium if price runs away from your desired entry/exit. This section is intended for advanced traders who do not reside in the US. 

 

The HXRO platform offers a product called the BTC tix contract. This is a contract that allows you to speculate on whether the price of Bitcoin will be above or below a certain price point by a certain time. 

 

A strategy to earn income while I sell BTC and buy back at a lower price is to use HXRO to earn while I wait for the price of BTC to fall. The example below will help illustrate this. 

 

Imagine that there is a strong downtrend present and you choose to sell 1 BTC at 40600 with the plan of buying back at an average price of 40000 for a profit of 600 (neglecting fees). Let’s say fees are 100 USD on this transaction, leaving you at a net profit of 500 USD. You plan to only buy back 1 BTC at 40000 and keep the profits in stablecoins. 

 

 

With this exact scenario, you also choose to buy 1 BTC tix contract that expires in 3.8 days. The amount you use is 500 USD, which means your net profit according to the odds above would be 350 USD. If BTC closes below 40000 by the expiration time, you will lose your 500 USD.

 

Now, let’s go through the various scenarios that can happen from the example above:

 

1. If price trends higher after you sold and closes above 40000 at the time of expiration of the tix contract above AND Bitcoin never touches that price point (fills your bids), you will earn 350 USD and will have 850 USD in your HXRO account (neglecting fees) and you will have 40500 USD in your spot BTC account. 

  • At this point you could choose to keep your bids where they are and continue to buy HRXO tix contracts that pay you out if BTC closes above 40000.
    • This means buying ‘yes’ contracts to close above 40000 or buying ‘no’ contracts to close below 40000.
  • You could take the money made from HXRO, send it to your spot account and buy BTC.

 

2. If price trends higher after you sold and closes above 40000 at the time of expiration of the tix contract above AND Bitcoin fills your bids at the average price of 40000, you will earn a total profit of 850 USD from a net profit of 500 USD gained from selling BTC and buying it back cheaper AND a net profit of 350 USD gained from the expiration of the product. This is by far the best possible scenario. 

  • You could then take the profits made from HXRO and buy BTC on your spot account if you are bullish, or you could hold them for later use.
  • A major benefit of enacting this strategy is its probability of success. The very instant that BTC fills your bids at 40000, mathematically there is a 50/50 chance that BTC expires above or below that price at any future point in time.

 

3. If price trends lower after you sold and closes below 40000 at the time of expiration of the tix contract above AND Bitcoin fills your bids at the average price of 40000, your realized USD loss will be 0. This is because you earn 500 USD from selling higher and buying back lower and also lose 500 USD from the HXRO contract that expired at a loss. This isn’t a great scenario but not entirely awful, as your BTC holdings do not change (you’d still have 1 BTC) and you do not suffer a realized USD loss. 

  • You could then reevaluate and assess how bullish or bearish BTC is. If you believe BTC is in a sustained downtrend and will likely head lower, you could run the strategy again.

 

When running this strategy, it’s typically better to hold HXRO contracts until they expire (due to HXRO fees plus potentially poor liquidity). The time of the contract that you choose is up to you, as you could enter a tix contract that expires the day of, a contract that expires on Friday, or one farther out. This all depends on BTC’s distance to your bid price and how short-term minded you are. 

 

For example, if price is at 42000 and you have bids set at 39000, you will likely have to enter the contract that expires Friday or a contract that expires later. 

 

In essence, the bid and wait strategy with hedging from HXRO tix contracts grant you the ability to earn passive income while waiting for your buy orders to fill. 

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