How To Trade Bitcoin (Without Losing Your Ass) Leveraging Option Spreads
Everyone is talking about Ethereum, Bitcoin, and cryptocurrency in general.
It feels like the entire world didn’t know about the currency markets until they heard about crypto on their Instagram feed.
Being an active trader, this scares the shit out of me.
Anytime I hear the gas station attendant, my grandma and God know’s who else talking about a trend I run as far away as possible, cryptocurrency is no different. The emotions are running high, and the greed is running even higher. They are building one ginormous Venus fly-trap for millennial investors.
Am I against crypto? Absolutely not. Do I believe there is a huge future in the crypto? That’s a definite YES. I just get the feeling that this is going to be one hell of a wild ride in the process.
Alright, enough of the bitch-fest — let’s talk solutions.
I rarely buy the underlying of any equity or commodity, let alone anything with an abrupt increase in volume and volatility.
My approach for this situation is the use of options, or better yet, option spreads. Option spreads allow us to purchase limited exposure to a specific product, while also limiting our downside potential. This also allows you to have exposure to a much larger position for a lot less capital.
Let’s take $BTCUSD for example, it’s trading around $2,500.00. I can buy 10 vertical call spreads for 20% of the cost of one underlying asset. I may be capping my upside potential by using a vertical call spread, but I’m also limiting my down-side risk and exposure to a potential melt-down.
It looks like $BTCUSD is consolidating into a wedge pattern. More often than not this will resolve with a fairly large move in either direction. The key here is to estimate the extent of the move and the direction in which it is headed.
With the MACD and RSI on the lower end of the range on the daily chart, this is looking like a consolidation pattern and we may see more upside. A $3,000/$3,500 call vertical expiring 45 days out (at a minimum) looks rather enticing.
The implied volatility is rather gnarly on Cryptocurrency assets, I would play small until we see more of a foundation built.
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