Dear Reader,
Most of you know me as an options trader. I own other assets—stocks, ETFs, and I even dabble in cryptocurrencies.
Actually, that’s an understatement. I love Bitcoin and Ethereum. In fact, I started mining Bitcoin back in 2013.
And I’d love to apply my options strategies to Bitcoin itself, but I can’t—not the way I want to, at least.
Technically, yes, you can trade Bitcoin options, but only on non-U.S. exchanges like Binance. For me, trading options outside a regulated U.S. exchange is a no-go.
I’m a speculator, but I’m not interested in outright gambling.
So today, I want to show you how you can profit from Bitcoin’s historic rise without buying a single cryptocurrency…
Let’s get to it!
Bitcoin Options on a U.S. Exchange
Bitcoin options will soon be available on a U.S. exchange. BlackRock has launched the iShares Bitcoin Trust ETF (IBIT), and once it gets final SEC approval, options on this ETF will be available on the Nasdaq and NYSE. These options will be physically settled in Bitcoin when exercised.
I’m excited about this development because it’s a way to profit on Bitcoin without buying and holding. Right now, Bitcoin’s trading at around $89,000, which is a hefty price to build a substantial position.
Leveraging Options to Profit from Bitcoin
Once these options on IBIT are available, I’ll dive into my usual pattern research on Bitcoin to decide whether I see it popping or dropping. If I expect a surge, I’ll look at bullish call strategies. If I think it’s due for a pullback, I’ll consider bearish plays like a long put.
Options allow you to profit whether a security rises or falls. If I anticipate a drop, I can use a bearish options play, like a put spread, to profit from the decline.
However, as of right now, we’re still waiting on those spot ETF options.
Until Then: Options on Bitcoin-Related Stocks
While we wait, I’ve found other ways to participate in Bitcoin’s price movement through options. I trade options on “crypto stocks”—companies in the crypto space that have a high correlation with Bitcoin’s price movement. These aren’t cryptocurrencies, but their prices tend to align with Bitcoin.
One of my go-to “Crypto Stocks” is Riot Platforms Inc. (RIOT), a Bitcoin mining company. ROIT owns a ton of bitcoin, so the stock closely tracks Bitcoin’s price movements, making it ideal for options trading.
Using options on RIOT, I can profit from Bitcoin’s volatility without having to buy the crypto itself.
My Favorite Strategy: Selling Cash-Secured Puts
One of my go-to strategies is selling cash-secured puts. With this, I sell a put option on a stock like RIOT.
Here’s how it works:
Sell a Put: When you sell a put, you’re giving someone else the right to “put” (or sell) shares to you at the agreed-upon price (the strike price) before the option expires.
Get Paid for the Risk: When I sell a put, I get paid a premium upfront. If the stock stays above the strike price, the option expires worthless, and I keep the premium as profit.
If the stock drops below the strike price, I may have to buy the stock at that price. But that’s OK—I wouldn’t sell a put unless I was willing to own the stock at the strike.
Let’s break down an example:
Say RIOT is trading at $14.45. I could sell-to-open the RIOT December 2024 $14 put for $2.
I’ll immediately collect $200 in premium per contract, which I keep if RIOT stays above $14 until expiration.
If RIOT drops below $14, I might have to buy it at that price, but I’d effectively be buying it at $12 when factoring in the premium I received ($14 – $2).
That’s a discount on my purchase price.
And once I own it, I can turn around and sell covered calls on it, bringing in even more income while we wait for the stock to hand us a profit.
Until we see those options on IBIT, this is the best way to Bitcoin’s historic rise as an options trader. Selling cash-secured puts means you’re getting paid for the considerable risk involved should the price drop and the shares are assigned.
But this approach gives you lots of flexibility. The key is to sell puts on stocks you’d want to own at a 10-20% discount.
If the trade goes against you and you’re assigned, you’ve got a quality stock in your portfolio to help you profit the next time BTC heads to the moon. Plus, once you own the stock you can execute a covered call strategy to extract even more income.
To your trading success,
Tom Gentile
America’s Pattern Trader