Unveiling the Flying Wheel Strategy + Crypto
In the dynamic realm of cryptocurrency trading, strategies that promise both stability and growth are like hidden gems. The Flying Wheel Strategy, a circular arbitrage tool based on options, has emerged as one such gem, offering a balanced approach to crypto trading. In this article, we’ll unravel the essence of the Flying Wheel Strategy and delve into the specific implementation by Pionex.com.
Understanding the Flying Wheel Strategy:
The Flying Wheel Strategy, as mentioned earlier, is a circular arbitrage tool based on options, utilizing put and call options commonly known as Buy-the-Dip and Covered Gain, respectively. It boasts multiple benefits, including interest income for each round of Buy-the-Dip and Covered Gain, as well as capitalizing on the price increase between buy and sell prices.
Fear not! After hearing the words options, puts, and calls, you’re seeing all kinds of formulas flying through your head and getting flashbacks of that time you failed your math exams. Fear not, my friends; it’s not as hard as you think it is. And for the implementation of the Flying Wheel Strategy, risks and complexities are reduced.
Imagine You’re Booking a Hotel Room:
1. What Are Options?
- Options are like having the choice to book a hotel room for a future date. You pay a small, non-refundable administration fee upfront for the privilege of having this reservation, and it’s akin to having a flexible booking option.
2. Puts and Calls:
- A “put” option is comparable to having the right to cancel your hotel reservation at any time, even if you initially booked it at $100/night and the market price for hotel rooms drops to $80/night. This means the hotel owner might incur a loss, as they would need to find new guests at a lower booking price, but you don’t have to worry about that.
- Essentially, the put option allows you to unlock your initial payment of $100 and receive it back. The potential profit arises when you can book another room at the current reduced cost of $80/night and pocket the $20/night difference. In essence, a put option grants you the right to buy at a discounted price if market prices drop. However, it’s important to note that this ‘right’ comes at a non-refundable cost that you pay to execute this privilege.
- The analogy continues until the point where, if hotel prices increase to, say, $120/night, you would need to pay the additional $20/night. Yet, you still retain the option to cancel and not proceed with the deal.
- On the other hand, a “call” option is akin to having the right to book a hotel room for a future date at a discounted price, even if the standard room rates increase. It’s a special deal that secures your flexibility to book at a lower, agreed-upon rate, similar to enjoying a discounted booking fee.
- When making this reservation at a discount, you would also pay a fixed administration fee. For instance, if the hotel room prices rise to $120/night, you can still purchase at the agreed-upon rate of $100/night and pocket the $20/night difference. However, in the scenario where prices drop to $80/night, you would end up paying $20 more if you decide to accept the room.
- Importantly, as it’s just a reservation, you still have the option to cancel at this point, but you would forfeit the administration cost.
3. Buying Options:
- When you buy a “put,” it’s like paying a small, non-refundable administration fee for the right to cancel your hotel reservation and receive compensation (similar to a non-refundable booking fee and cancellation insurance). If your plans change unexpectedly or room prices drop, you can sell your reservation back to the hotel at the initial agreed-upon price, mitigating potential losses or even make a profit.
- Buying a “call” is like paying a small, non-refundable administration fee to secure the right to book an extra hotel room for a future date at a lower, agreed-upon price, providing you with the flexibility to benefit from lower rates even if prices rise.
4. Selling Options:
- Now, if you work for a hotel and have empty rooms available you can sell these special reservation deals (options) to others, you receive a small fee for giving them the option to book or cancel their stay at agreed-upon prices. It’s like offering them the chance to have their own flexible reservations with a non-refundable administration fee. Your income is essentially the fee for the work you do in planning or canceling the reservations.
1. Buying Options:
- The risk when buying options is similar to paying a small, non-refundable administration fee for the right to make decisions about your hotel stay. If your plans to buy or sell crypto at a set price change you might lose the fee you paid for the option, similar to the cost of a non-refundable booking fee.
2. Selling Options:
- If you’re selling these special reservation deals, the risk is that you might have to fulfill your promise. It’s like offering someone the right to book or cancel their hotel stay, and if they decide to exercise that right, you have to follow through, even if it’s not as profitable as you hoped for, much like managing bookings with non-refundable administration fees. For example, you have to give them the room for $100/night when you could actually get $120/night right at the current prices.
There’s a lot more to options than this, such as the famous Option Greeks, financial metrics that traders can use to measure the factors that affect the price of an options contract. But this is a terrible pain in the ass to go through and I fear I have lost half of you already. Frankly it also unnecessarily complicates things for our objective, the Flying Wheel Strategy in Pionex.
- Circular Arbitrage: Utilizes put and call options for Buy-the-Dip and Covered Gain.
- Multiple Benefits: Earn interest income and profit from price increases.
- Minimum Investment: Starts as low as $1.
Flying Wheel Explained:
So basically what happens is you sell Buy-the-Dip premiums (puts) and as long as the deal expires worthless for the buyer of your premium, you keep the premium and can even reinvest it. However, should you have to buy the crypto, you sell a Covered Gain premium (call) with a strike near your buy price or slightly higher. As long as the deal expires worthless you keep the premium and make new deals and reinvest the profits, once the deal goes through you have your initial investment back and then you start selling Buy-the-Dip premiums again.
This sounds like a lot of work, doesn’t it, keeping track of the market? Fear not; Pionex has fully automated this process. You only set the initial conditions, and the bot will do the rest.
Benefits and Risks:
- Consistent Daily Profits: 0.5%–1% daily return.
- Long-term Viability: Ideal for those with a belief in the long-term potential of cryptocurrencies.
- Potential Price Drops: Risk of price drops after swapping for cryptocurrencies. You risk to be in a cryptocurrency for longer than desired. Therefore pick a stable currency such as ETH or BTC.
How to Create a Flying Wheel Strategy on Pionex.com:
App Version (Automatically Invest with a Bot):
- Sign in to your Pionex App account and go to the trade tab
- Navigate to “Earn” on the top bar.
- Select “Structured” on the bar right below.
- Click the “+ Invest” button on the bottom-right side.
- Choose “Flying Wheel Strategy” and opt for Basic or Pro mode.
- Input the a lower price for Buy-the-Dip and confirm
- Now select the duration long duration is more premium but less cycles. I personally keep the cycles short.
- Click Purchase.
- Add the amount you want to invest and the minimum APY you want to earn and the length of the longest period = your acceptable investment period and click confirm.
As you can see you can see in this example you can set up a bot with just a few dollars.
Integrating Pionex.com’s Flying Wheel Strategy:
Pionex.com’s Flying Wheel Strategy incorporates circular arbitrage through automated Buy-the-Dip and Covered Gain mechanisms. The platform offers both Basic and Pro modes to cater to users with varying risk appetites.
In Basic Mode, users set a target buy price, and the system employs Buy-the-Dip to acquire crypto at the specified price. The acquired crypto is then automatically reinvested using Covered Gain until the target sell price is reached. This process ensures a continuous cycle of earning from both price increases and interest.
Pro Mode introduces flexibility by allowing users to specify the expected percentage price drop. The system then seeks a Buy-the-Dip product with a price closest to the current price(1-percentage price drop). Similar to Basic Mode, the acquired crypto is reinvested using Covered Gain, providing users with the benefits of both price appreciation and *interest income.
The Flying Wheel Strategy, especially when implemented through Pionex.com, provides a strategic and balanced approach to crypto trading. Whether you opt for the automated bot on the app or prefer a manual approach on the website, the strategy offers a versatile and potentially rewarding experience. As the crypto market continues to evolve, strategies like the Flying Wheel are becoming integral tools for traders seeking stability and growth in their investments. And no need to water it, like having a financial butler without the fancy attire.
The above references an opinion and is for information purposes only. It is not intended to be investment advice and may contain affiliate links. Seek a duly licensed professional for investment advice.