Crypto trading challenge part 2
First month's results and some general insights
These last few weeks have been really eventful when it comes to both trading and crypto in general. Ethereum has hit multiple “all-time highs” (ATH) and the last one being the first time to break 2000 USD. Back when I started this challenge and the price was around 1250 USD and I bought around 1.94 ETH for around 2000 euros. This means it’s almost double of what it was worth back then in less than a month. This trend actually translated well to other coins, as a matter of fact, I’d say Ethereum was slightly underperforming since BTC has been on a rampage along with some other altcoins. Speaking of which, I’ve been meaning to diversify my portfolio next to my ETH and was doing some research on some coins. Back when I was looking into multiple coins, one of them being ADA, because of the high potential and the other one being RSR, the latter being recommended by my colleague. I ended up not buying any at the time, and instead put it in some stocks. Which was around January 31st and ended up regretting it, so a few days later I did end up putting some money in RSR mainly because ADA is still in the conceptual phase while RSR has some practical uses already and some really strong backers, one of them being Peter Thiel, other one being Coinbase. RSR did end up going up to almost a 100%, but quickly corrected itself to around 50% profit, which is where it is right now. ADA however ended up quadrupling in value! At the time I was planning on buying it around 33 cents, now as of today, it’s at 1.10 USD. Goes to show I should've trusted my own due diligence. As they say, hindsight is 20/20. Now to get back to my challenge.
Challenge results
The 2nd week was pretty solid, I experimented a bit with different strategies and made some adjustments based on the results I got. As you can see above I ended up with slightly more than 3.0 ETH for the 2nd week, which means overall I’m up about 54% since my starting point of 1.94, not too shabby for only 2 weeks. At the time the price of ETH went up as well and the actual value in fiat increased by 94%! One thing I picked up directly during this week is the fact that crypto options are much more volatile than stock options. Because of that if you plan on writing puts you need to put them underneath a strong support base, to prevent your options from getting in the money. This means you need to use smaller deltas and daily options trades aren’t as lucrative because the premiums are much smaller.
The 3rd week was another experimental week, I did keep on writing my usual options, but since multiple sources ended up talking about ETH going past 2k, even as far as 2500, before valentines day (Feb 14th) I ended up buying some calls which didn't end up hitting the desired target in mind. The main reason ETH never went past 2k during Valentine’s day, and I ended up having to wait for my calls to hit the target I had in mind.
I still have a screenshot of the technical analysis, I did from last week, which ended up getting hit yesterday on the 20th. This meant one of the calls I bought ended up almost expiring before it hit the target so I closed it around breakeven. I did have one call with a further expiration date, which ended up profiting from. I finished the 3rd week around breakeven. One of the things I can take away from this is that the main mistake I made was buying calls with too short of an expiration date. The prediction was actually not that bad, but obviously, there are always some factors you have to keep in mind when you make your predictions. The main reason for buying short expiration date calls was mainly that the premium is cheaper, but I ended up losing more money because of them almost expiring. So in the end I was better off writing puts.
This brings us to the end of the 4th week, aka the end of the first month. Once last week's experiment finished, it was back to business as usual and selling puts. I guess you could say it’s less exciting than buying calls, but we’re here to make money, so excitement should not be our priority. One major benefit of selling options over buying them is that you’re not as dependent on the price moving in a certain direction. When I was buying calls I would constantly check the price during the day. Mainly so I could take profit at the right time but also because I was curious what the payoff would be if my contract hit a certain price. One way to remedy this is to just set a profit target and let it be, but I think even then I’d probably still end up staring at my screen more than I wanted to. When selling puts the stress is pretty much nonexistent, all you do is some analysis beforehand, set a proper strike price and you’re pretty much done until it hits your profit target or until it expires. It can move upwards, sideways, and even downwards a bit, depending on how low you set your strike price and it doesn’t matter much for the outcome. It’s the reason I picked it up initially and it's why I prefer using it from now on.
Concluding thoughts and results
The focus, for now, will be selling puts. I believe this is the way to go in the long run, since it’s much harder to predict the price from moving up, compared to determining the right support and resistance levels. As for concrete numbers, I ended up having an ROI of 79% in ETH, which I’m very happy about, and to make this even better since ETH pretty much exploded, I ended up with more than 179% ROI in EUR/USD/fiat (current price ETH being 1920USD at 21st of Feb.). Obviously, I’m very happy with the results, so really looking forward to my next month.
