Trading Bitcoin Options

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bitcoininthevp
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Trading Bitcoin Options

Post by bitcoininthevp » Thu Aug 29, 2019 7:32 pm

Due to bitcoin's volatility, there is a lot of premium in selling bitcoin put and call options. For example, BTC is about $9400 right now on exchanges. Selling a call option for 4 weeks from today at $12,000 is about $200. About 2% return. For less than a month. That would mean BTC would have to rally about 30% to hit the strike price.

For those thinking this is in back room dealings, LedgerX is a CFTC US regulated bitcoin derivatives exchange trading 24/7.

Im not saying its free money or no risk. But 25% annualized returns on such an investment, if you are a BTC holder, is nothing to pass on without at least thinking it through.

Anyone have experience with crypto derivatives? Or options in general?
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pugchief
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Re: Trading Bitcoin Options

Post by pugchief » Thu Aug 29, 2019 7:59 pm

I used to sell naked OTM puts. Similar scenario, a couple hundo premium per trade. Then one gets ITM and the loss to cover that one position nullified the profit on the previous ten.

Same with crowdfunded real estate. Getting 9% returns until one defaults and goes bankrupt and the loss of principal is more than all the $ that I made in the last 4 years on this crap.

Stick to the PP.
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bitcoininthevp
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Re: Trading Bitcoin Options

Post by bitcoininthevp » Fri Aug 30, 2019 5:54 am

pugchief wrote:
Thu Aug 29, 2019 7:59 pm
Stick to the PP.
Well this is the Variable Portfolio board :)
pugchief wrote:
Thu Aug 29, 2019 7:59 pm
I used to sell naked OTM puts
Im holding BTC already so it would be a covered call I would be selling. Selling covered calls is less risky as its really just capped upside.

There is still opportunity for "loss" in that I would miss out on upside appreciation of BTC above the 30% price gain (+2% premium earned) in one month (in this example).

I should also mention these are european style calls. They can only be exercised at the end of the option term.

I have yet to run the numbers on "1 month periods where the BTC price at the end of the term was 130% of the first day of the period".
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ochotona
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Re: Trading Bitcoin Options

Post by ochotona » Fri Aug 30, 2019 8:12 am

Is GBTC a way to get exposure to BTC? I might use lunch money to buy some shares if it goes down another 50%
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bitcoininthevp
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Re: Trading Bitcoin Options

Post by bitcoininthevp » Fri Aug 30, 2019 10:51 am

GBTC has had large premiums against "physical" BTC.

See here: https://bitcoinist.com/gbtc-premium-ris ... al-demand/

That said, it seems to basically track the BTC price.

It might be an easy way of getting exposure for some people? Ive never done it so I cannot say.

Square's Cash App is pretty easy to purchase BTC through these days though: https://cash.app/
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ochotona
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Re: Trading Bitcoin Options

Post by ochotona » Fri Aug 30, 2019 12:28 pm

bitcoininthevp wrote:
Fri Aug 30, 2019 10:51 am
GBTC has had large premiums against "physical" BTC.

See here: https://bitcoinist.com/gbtc-premium-ris ... al-demand/

That said, it seems to basically track the BTC price.

It might be an easy way of getting exposure for some people? Ive never done it so I cannot say.

Square's Cash App is pretty easy to purchase BTC through these days though: https://cash.app/

Thanks, I installed that app. So what BTC fork does Cash trade? On CNBC, these forks are listed.

BTC-Bitstamp Bitcoin/USD Bitstamp 9558.5801 70.23 0.74% 4110 9493.68
BTC-Coinbase Bitcoin/USD Coinbase 9570.79 70.79 0.75% 11250 9500.0
BTC-Gemini Bitcoin/USD Gemini 9573.71 71.71 0.75% 907 9502.0
BTC-Bitfinex Bitcoin/USD Bitfinex 9595.6396 71.3398 0.75% 3640 9524.3
BCH-Bitstamp Bitcoin Cash/USD Bitstamp 280.69 2.26 0.81% 3686 278.43
BCH-Coinbase Bitcoin Cash/USD Coinbase
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bitcoininthevp
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Re: Trading Bitcoin Options

Post by bitcoininthevp » Fri Aug 30, 2019 2:49 pm

ochotona wrote:
Fri Aug 30, 2019 12:28 pm
Thanks, I installed that app. So what BTC fork does Cash trade?
There is only one BTC ticker. It is called Bitcoin.

Bitstamp, Gemini, Coinbase, etc are all exchanges that deal with BTC (Bitcoin), among other coins.

BCH is a ticker for a coin called "Bitcoin Cash". It is a separate network from Bitcoin entirely (although it has some of same code as Bitcoin's code).

There are all kinds of coins trying to ride on the Bitcoin name. Bitcoin Gold, Bitcoin Silver, Bitcoin Diamond. Heck, you and I could launch a coin tonight called Bitcoin Browne.

When I am speaking here Im talking about Bitcoin with the BTC ticker.
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ochotona
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Re: Trading Bitcoin Options

Post by ochotona » Sun Sep 01, 2019 3:49 am

So how do you trade Bitcoin options? Probably GBTC options would be available from any broker. I can see a put and a call put on simultaneously.

PS - whoops!

Options Chain is not available for GBTC. (Schwab)
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bitcoininthevp
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Re: Trading Bitcoin Options

Post by bitcoininthevp » Sun Oct 06, 2019 11:21 am

No idea what 'Options Chain' is that you are referencing.

If you are in the US, you can trade options with a regulated US entity, LedgerX, currently. CME has announced options for Bitcoin coming early next year.
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Kbg
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Re: Trading Bitcoin Options

Post by Kbg » Tue Oct 08, 2019 9:18 am

Selling options is good but do so with moderation and as noted you can get several trades' profit wiped out with one bad market move. However, I would highly recommend one become thoroughly versed in option geek speak and do not underestimate how difficult it actually is. To be profitable in options, you need to get both direction and timing correct while accounting for volatility pricing. I personally don't believe selling options for income is a good idea. I do think selling options as a speculative venture is OK.

Sea story...I traded a specific instrument/sold volatility for 6 years and made literally in the hundreds of percents return. It was awesome. Then it blew up and I lost 97% of my total profit on a three hour plane ride when I couldn't do anything. However, even with that my CAGR was 14% for the 6 years. Of note, I always kept this as a small part of my total portfolio as I knew it was highly speculative.

Again...do not underestimate how difficult it is.
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bitcoininthevp
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Re: Trading Bitcoin Options

Post by bitcoininthevp » Tue Oct 08, 2019 10:02 am

I for one appreciate this warning and the personal story.

As someone looking to learn options more, can you explain the risks associated with selling 100 covered calls at strike X and then if underlying price approaches strike X, you enter a 100 long position at X. This long position would capture any upside lost above the strike from the originally-sold covered calls.

Im new to options and this feels too good to be true, which means my dumbness is blinding me.
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Kbg
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Re: Trading Bitcoin Options

Post by Kbg » Tue Oct 08, 2019 10:25 am

Based on the question you just asked, I would highly recommend you get better educated on options before doing anything.

CBOE and TastyTrade have good, free education materials. Sheldon Natenberg is generally considered to be a good source of option related books and the "Options Bible" was written by a guy named Lawrence G. McMillan.

With regard to the specific question you asked what you are suggesting is called a "Bull Call Spread." (which you can also do with puts BTW) You can open the covering call when originating the position or later. If you open it at origin you have a fixed profit profile which will be less than a "naked call" position. If you open it later when the underlying is moving toward or past your call strike then you will likely end up with even less profit or a loss. Remember as the underlying moves in the direction of the strike both the short call and the long covering calls are increasing in price...so your short position is losing its profit and the hedge/covering option is getting more expensive.

As you learn more about options, you will learn there is no such thing as a free lunch to be found. Everything in options boils down to trade offs.
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