[Daily Discussion] - Saturday, September 11, 2021 Bitcoin Markets |
| [Daily Discussion] - Saturday, September 11, 2021 Posted: 10 Sep 2021 09:00 PM PDT Thread topics include, but are not limited to:
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| Follow up: Bitcoin 50k Covered Call 29 Oct 2021 Expiry Trade Posted: 10 Sep 2021 04:46 PM PDT Preamble: Before I go on I just wanted to clarify that I am not trying to encourage anyone to trade options or derivatives. In fact, I strongly discourage most people to use derivatives as they are leveraged investments and can easily go against you and result in losses that go beyond what you have in your trading account. The risk is even greater with highly volatile investments like bitcoin and cryptocurrencies in general. Furthermore, derivatives require a very active management and quickly become time consuming. Studies have shown that simple buy and hold - HODL! - strategies have systematically outperformed derivative investments and I strongly recommend that this is what the majority of people should do. However, even if one is not investing in options, they can be really useful tools to interpret what the market may or may not do and the idea here is to exchange views and opinions and these interpretations. I'm also writing this just as much for myself as for anyone else as it helps me keep track of my investment process and gain valuable insight from others' opinions. If this might be of interest read on. If not please skip this post and rest assured that HODLing is much safer and more lucrative than trading options. Follow up I posted a couple of days ago a trade idea which you can read about here. I wanted to put on this trade because my feeling was that we had reached a ceiling with the 52k level and while I still wanted to benefit from some upside if we kept on rallying I also wanted to protect my BTC investment from a pullback which I felt could come from some negative regulatory scrutiny. My target trading range was 45k / 55k. Low and behold BTC took a severe beating a few hours later due to the negative news from the SEC taking interest in the Coinbase lending program. Luck must have been on my side because I couldn't have possibly timed this if I had wanted to - in fact that's why I chose a medium term 60 DTE maturity for the trade as I didn't expect the correction to come so soon. By selling the 50k BTC Oct21 Calls on Wednesday we collected 0.15 btc ($7.8k) of premium and at time of writing they are trading around 0.1 ($4.5k) therefore locking in a 0.05 ($2.3k) unrealized profit from the decrease in the value of the option. However, since this is a delta neutral trade the long delta hedge 0.5 btc per option has cost us around 0.06 btc ($3k) due to the 10% drop in the value of btc from 52k to 46k. As intended this trade has mitigated our losses from the correction as the decrease in the value of the option has more or less compensated for the drop in the price of the underlying. What now? There is still a fair amount of premium in the option therefore we are going to hold the position since the general consensus is that the market will not bounce back quickly and we are looking at a trading range of 40k / 50k for the weeks to come which means that theta decay will chip away at the value of the option netting us some additional profit. Since we remain bullish it might be a good time to purchase some additional spot since this will enable us to buy some "cheap" btc so we don't miss out on the next rally while also counteracting the increase in premium of our short call position if the market does move up. That being said macro news may weigh on btc and crypto in general with Fed starts tapering in Q4 so we will be cautious in our btc spot purchase by averaging our buying. Was this the best trade or would there have been better trades? In the initial post u/LoudOrganization6 suggested selling a 65k strike instead of the 50k. This would have been more suitable for someone more bullish than me and would have captured only 0.05 ($2.6k) btc of premium by selling the 65k call strike for the same expiry. The idea was to maximize the premium income which is why we opted for a slightly ITM call to match our short term bearish outlook. Another combo by u/LoudOrganization6 would have been to sell a 60k strike Call (0.08 btc) and buy a 45k Put (0.7 btc) which is essentially a Collar. The sale of the Call would have paid for the purchase of the Put. At time of writing the 60k Call is now worth 0.04 btc and the Put 0.12 btc. With hindsight this would have been a much better trade than the Covered Call trade although it would have hurt a bit more in the short term if the market had kept on rallying with the increase in the premium of the call and the collected premium having been used up to pay for the long put. As always tits jacked ! [link] [comments]  |
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