Cryptos have had a really challenging time over the last six months.
Back in October, Bitcoin (BTC) had raced to $126,000 – an all-time high. It looked to be on the cusp of another major move higher. Likewise, Ethereum (ETH) was surging back toward the $5,000 level.
But that’s when the rug was pulled…
Both went through massive corrections, giving new crypto investors their first taste of a true crypto drawdown. By the time these assets bottomed out in early February, ETH had lost two-thirds of its value… and BTC had halved.
However, that dramatic move was overdone. We were able to snag a quick rebound and profit from trading iShares Bitcoin Trust ETF (IBIT) last month.
And this month, we were able to do that again, banking a handy 44.7% gain in just a little over a week. Let’s look at how it worked…
In February, Bitcoin experienced a sharp turnaround in momentum. The Relative Strength Index (RSI) had formed a “V” and rallied out of oversold territory (coinciding with IBIT’s February low).
If you look at the IBIT chart below, you can see that momentum continued to build. The RSI made a series of higher lows (green line), which caused IBIT to steadily grind higher.
iShares Bitcoin Trust ETF (IBIT)
Source: eSignal
Even the conflict in Iran, which you’d expect to harm risk-on assets like cryptocurrencies, was unable to stop its rise. IBIT rallied… That was evidence that the selling that began back in October was done – and that a trade could be in the cards.
After its initial move higher, IBIT made a short, sharp pullback. So we pounced. We bought a call option on March 6 for $3.30 per contract (or $330, as an option contract is for 100 shares).
Options are a great way to participate in an expected move with capped risk. Even if IBIT fell dramatically rather than rallying, the most we would lose is the option premium ($330 per contract in this case).
Options are also a cheaper way to gain exposure to a move than buying the underlying shares. Compare $330 to the thousands you’d pay to buy 100 shares of IBIT outright. So options really allow you to put your capital to work efficiently.
As the chart shows, we got our timing spot on. After we entered the position, momentum continued to build, pushing IBIT higher.
Take another look:
iShares Bitcoin Trust ETF (IBIT)
Source: eSignal
With our position in good profit and IBIT’s move stalling on the day, we decided to exit the trade on March 16. We didn’t want to risk handing any of our profits back.
Our exit price was $4.78 (or $478) per contract. That equated to a 44.7% gain in just 10 days.
To be clear, we generated this gain using options. Options magnify gains and losses compared to just trading shares.
And because options expire, the clock is always ticking. If the move you anticipated doesn’t play out within your expected time frame, you can lose the premium you paid (though you can always exit the position before expiration).
By using options, though, we can gain exposure to IBIT (and BTC) whether it goes up or down. That’s why, as volatility ramps up in BTC and other risk-on assets, I’ll keep using options to capture profitable moves. If you’d like to join me for the next trade I recommend, you can find out more right here.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
