Options Arena: Bitcoin, Round 2
I can think of no better topic for an Options Arena this week than bitcoin.
Not because of its somewhat-impressive rally in the face of yet another Fed rate hike…
But because it’s been Mike Carr’s favorite punching bag all week long, and it’s time for some new contestants to step into the ring and give their takes on the King of Cryptos.
No doubt, they face stiff competition.
Mike’s found a way to 5x the return of bitcoin over a seven-year backtest of his newest trading system.
135% a year, for a combined 43,000% return from when bitcoin was just $250.
And just two days ago, Mike used a previously unavailable trading technique to hand his One Trade subscribers a 100% gain off of an 8% bitcoin rally.
Mike’s riding high this week, making the buy-and-hold-for-dear-lifers look more than a bit ridiculous.
But we here at True Options Masters have plenty of trading talent on speed dial — and they all have big ideas about bitcoin…
Including Adam O’Dell, from our sister outfit Money & Markets.
An ace options trader in his own right, Adam’s decided to jump into the Arena and dance with the fan favorites.
Be sure to give Adam a warm welcome, and keep his insight top of mind, as we go for a long-awaited round 2 of bitcoin in Options Arena!
Mike: The Real-World “Gnome Underpants Business Model”
Trading exchanges have existed since 4500 BC.
Over the past 6,500 years, exchanges always served an economic purpose.
But cryptocurrency exchanges don’t seem to serve any purpose at all.
Many crypto enthusiasts are missing that point. They use dollars or euros or some other currency to enter the crypto market. Then something happens — either a win or a loss — and they take money out of the market in…
You guessed it, dollars or euros or some other currency.
It’s almost like the crypto market was created as a joke by the writers of South Park, to show how the gnome underpants business model works in the real world.
If you missed that episode, the plotline is simple.
Gnomes hiding in caves come out at night to steal underpants, which they plan to eventually turn into profits.
All that’s missing is Step 2 of their plan — the step that creates actual profit.
Crypto has no real-world application, except for a small role in the underground economy. But even that role is limited. My gardener and housekeeper don’t want to be paid in crypto. They want cash.
As traders, we don’t need to think about Step 2. We also don’t need to think about Steps 1 or 3 — how bitcoin is mined or how valuable it is based on the real-world money investors pour into it.
Traders don’t care about any of that. We can profit if crypto goes up or down. And, we can limit our risks with options strategies to avoid the dangers involved in giving personal information to hackable crypto exchanges.
We can simply enjoy our time in the crypto ecosystem while others worry about the elusive Step 2 of the business model.
There are some real believers searching for a purpose for bitcoin. There are many others who want to believe. These people will buy and push up prices.
When they add funds, we can profit by trading call options. When they become frustrated and sell, we can profit on the downside, too, with put options.
All we will do is trade. And bitcoin is perfect for that.
Amber: Bitcoin… or Beanie Baby?
I disagree with Mike Carr that bitcoin serves no purpose.
In many ways, it serves the same purpose as Beanie Babies. Some people just like them and are willing to buy and own them.
Famously, Beanie Babies were a bubble in the late 1990s. This bubble was fueled by loose Fed policy and the rise of eBay.
Easy money contributed to low unemployment and high consumer confidence. The internet bubble allowed companies to raise funds without showing a path to profitability. And eBay provided a global market for Beanie Babies, which otherwise would’ve been limited to local sales.
So the Beanie Baby bubble was a result of marketing that emphasized scarcity, easy money that boosted consumer confidence, and technology that allowed individuals to participate.
Now, let’s turn to bitcoin…
Marketing, check. Proponents argue it’s a world-changing monetary system — or at least a way to get rich quick.
Easy money, check. The Fed boosted the money supply by more than 40%, and the federal government handed out trillions in stimulus money as the market cap of bitcoin increased from $95 billion to more than $1.2 trillion.
Technology, check. Mining and exchanges allow individuals to participate in the market.
The Beanie Baby crash didn’t destroy the market. It rationalized prices. That needs to happen with bitcoin and more generally with the cryptocurrency markets.
Looking ahead, there will always be demand for bitcoin. Many people still have Beanie Babies. Ask Mike to show you the top of his bookcase where a Beanie Baby bull and bear sit.
He knows they aren’t a long-term investment, though. Neither are cryptos. But they are great to trade as long as the markets remain liquid and volatile.
Adam: My Top 3 Bitcoin Options Plays
I love bitcoin.
Trading bitcoin, that is.
See, I cut my teeth trading FOREX with 200:1 leverage. It was the most volatile asset you could trade at the time… before regulators capped leverage at 50:1.
So I learned not to love an asset. I learned to love the trade, long and short.
When you trade, volatility is the life-blood of your profit-making opportunities. The more something moves, the more money you can make on it.
Plus, a volatile asset played via options is a match made in heaven, in my book!
Right now I have three longer-term, bitcoin-driven options plays in my personal account.
I’m long calls on a U.S-listed bitcoin miner (“bullish”)
I’m not at liberty to disclose which bitcoin miner, as I’ve recommended a bullish play on my favorite bitcoin miner in my 10X Fortunes service. There, I’m building a portfolio of megatrend-driven stocks that have the potential to generate 1,000% returns in as little as a year.
Safe to say, though, buying shares of a bitcoin miner is a great way to gain leverage on the price of bitcoin itself. My favorite miner has a blended cost of production so low, that bitcoin could fall another 50% and it’d still be profitable.
Of course, if you buy calls on a bitcoin miner you get even more leverage. I’m long calls that don’t expire until January 2024, since it could take some time for bitcoin to turn around.
I’m long puts on the ProShares Bitcoin Strategy ETF (BITO) (“bearish”)
And that’s why I’m “short” bitcoin, via long puts on BITO.
I bought them in May when bitcoin re-tested the 30,000 level. It sliced through and fell to 20,000 pretty quickly, so my puts are in the money now.
I expect to make more on my bullish plays than my bearish one, but puts on BITO are a great way to hedge. And if the bottom isn’t in yet, they will really move!
I’m short puts on Coinbase (COIN) (“bullish”)
And lastly, I’m short puts on Coinbase. This is something of a yield play I just couldn’t pass up. I put the trade on in mid-June, when Coinbase had to publish a concerning disclosure about customer funds.
That news caused implied volatility to spike well above historical levels. The $22.50-strike puts, expiring in January 2024, were going for $650 a contract.
Coinbase shares were trading for about $50 … already more than 80% off their $381 IPO price. And I reckoned I’d be willing to buy shares at $22.50 … which would require a further 50% drop.
And as I said, the yield was just too juicy to pass up.
At $650 a contract … that’s a yield of 29% on the full cash-secured $2,250 potential purchase price … and a 74% yield on the $875 initial margin requirement.
All told, I love finding unique opportunities like these in bitcoin-driven option plays. The volatility in the crypto space is just too good to overlook when you know how to play it.
And now that there are more exchange-listed stocks and ETFs available to trade — like the ProShares Bitcoin Strategy ETF (BITO) — anyone with a regular brokerage account can get in on the action!
Chris: This Turned an 8% Move Into a 100% Gain
I’ll be honest, I thought bitcoin was going to hit $100,000.
It peaked at around $69,000 in November — just $5,000 more than its previous high last May.
At this point it will probably take years to come back.
I’ve been watching it closely since 2017. It rose 2,000% that year. A year later, it was down 85%. It had a nice relief rally in 2019, only to retest lows before making another attempt.
Point is, this stuff takes awhile to play out.
I plan to start buying back in at the end of the year. After all, it took a full year for the last bubble to fully burst, and while it retested those lows, it never dropped lower.
Fortunately, you don’t need to wait until the end of this year to plant the seeds for your next payday.
Mike has figured out a way to trade bitcoin that’s far better than owning the asset itself. In fact, he just scored a 101% gain this week. It only took two days. And only an 8% move in bitcoin itself.
Some people buy and hold bitcoin forever. Others trade alt coins. Mike has found the perfect balance of trading bitcoin without having to get too complicated. I think he’s discovered the sweet spot, and it may result in his best strategy ever.
Want to know why Mike, crypto-agnostic that he is, can exploit bitcoin so effectively?
Check out Mike’s full presentation on it right here. I found it fascinating. If I had to guess where bitcoin will bottom out, based on prior trends, I’d say $12,000. That’s another 50% drop from here. You can make money as that happens. Just click here to learn more.
Did anyone have Mike Carr pegged as a South Park fan?
The man is full of surprises.
I, for one, never thought he’d touch crypto.
Let alone develop an entire options strategy around it…
But he did — and managed to beat bitcoin buy-and-holders by 5 TIMES in a seven-year backtest.
Remember, it returned a whopping 43,000%. And Mike says that’s just the beginning…
All you need is a regular ol’ brokerage account to get started. No sketchy digital wallet required.
What’s stopping you from making 5x bigger gains than any bitcoin HODLer, with 80% less risk?
Managing Editor, True Options Masters