Bitcoin Forum

Trader tries a clever way to cash in on the bitcoin boom

Suddenly everyone is going crazy for crypto, and as bitcoin futures are becoming a reality, one trader has a way to cash in on the action.

Bitcoin has been on a tear this year, surging at least 1,000 percent in 2017. As the cryptocurrency gained even more attention from investors recently, the Commodity Futures Trading Commission announced on Friday that it would allow the CME and Cboe to launch bitcoin futures. The Cboe plans to launch on Dec. 10 and the CME intends to launch on Dec. 18.

This is "very good news for the exchanges when you start listing products that everybody is excited about … I think it's safe to say that bitcoin is attracting a great deal of attention," Mike Khouw of Optimize Advisors said Friday on CNBC's "Options Action."

Since announcing it would launch bitcoin futures on Oct. 31, CME has surged 11 percent to fresh all-time highs. Bitcoin is up about 85 percent during that period, according to CoinDesk.

As the exchange race for bitcoin continues, Khouw expects these stocks to continue to soar, and he offered an options strategy to get in on the boom.

One way to play the upcoming launch of bitcoin futures is by selling put options on the CME, he said. Khouw noted that this type of trade structure allows one to buy a stock at a lower price than where the stock is currently trading.

"If we look at CME, obviously the stock has had quite a run here, and where it really broke out from, in my perspective, is right around the $140 level," Khouw added. "When you sell a put, you're selling somebody else the right to sell you a stock at the stock price," he explained.

Another reason to sell a put according to Khouw is if options prices are expensive. He pointed out that the price of CME options has spiked recently as the price of bitcoin surged. "We want to capitalize on the fact that options are high and have an opportunity to buy [CME] stock at a lower price," Khouw said.

Suddenly everyone is going crazy for crypto, and as bitcoin futures are becoming a reality, one trader has a way to cash in on the action.

Bitcoin has been on a tear this year, surging at least 1,000 percent in 2017. As the cryptocurrency gained even more attention from investors recently, the Commodity Futures Trading Commission announced on Friday that it would allow the CME and Cboe to launch bitcoin futures. The Cboe plans to launch on Dec. 10 and the CME intends to launch on Dec. 18.

This is "very good news for the exchanges when you start listing products that everybody is excited about … I think it's safe to say that bitcoin is attracting a great deal of attention," Mike Khouw of Optimize Advisors said Friday on CNBC's "Options Action."

Since announcing it would launch bitcoin futures on Oct. 31, CME has surged 11 percent to fresh all-time highs. Bitcoin is up about 85 percent during that period, according to CoinDesk.

As the exchange race for bitcoin continues, Khouw expects these stocks to continue to soar, and he offered an options strategy to get in on the boom.

One way to play the upcoming launch of bitcoin futures is by selling put options on the CME, he said. Khouw noted that this type of trade structure allows one to buy a stock at a lower price than where the stock is currently trading.

"If we look at CME, obviously the stock has had quite a run here, and where it really broke out from, in my perspective, is right around the $140 level," Khouw added. "When you sell a put, you're selling somebody else the right to sell you a stock at the stock price," he explained.

Another reason to sell a put according to Khouw is if options prices are expensive. He pointed out that the price of CME options has spiked recently as the price of bitcoin surged. "We want to capitalize on the fact that options are high and have an opportunity to buy [CME] stock at a lower price," Khouw said.

Specifically, Khouw targeted the January 145-strike puts for $4.50. Because Khouw is selling a put, he is willing to get long the stock at $145, but he stands to profit if CME stock closes at or above $140.50 by January expiration.

Khouw will face losses if the stock closes below $140.50 by the expiration date. "The nice thing about this trade is, you make profits if it stays [at $140.50] or goes higher and even if it declines a bit," he said.

CME shares were trading in the $152 range midday Monday.


Source: https://www.cnbc.com/2017/12/04/trader-tries-a-clever-way-to-cash-in-on-the-bitcoin-boom.html

Selling option premium is fucking retarded.

In an option, the price or "premium" depends on the underlying instrument. In this case, its the price of the underlying CME stock price.

If you sell a put, what you're really doing is saying "I want to lock in the difference between the put option price right now, and when it expires - which is near zero - IF my strike price isn't challenged."

So if you have sold a 155 PUT, and its price is 4.60, that is the profit you can expect - you are not rewarded if the price of CME's stock rises over 155, you want it to stay under 155 or lower.

The problem with this is, if the underlying stock rallies past 155, then you are on the hook for the losses. As the stock price increases, the option price increases dramatically as you go "in the money" on the strike price.

This is known as a "widowmaker" trade, because instead of BUYING option premium, you are SHORTING it, which trades a small profit with a potentially large risk-of-ruin.

Anyone recommending shorting option premium should have their head examined.

Good analysis, TraderTimm, that's really not a clever way at all to cash in. It's really a lot like the gambler's fallacy, where small profits seem attractive due to the seemingly unlikely chance of massive losses. Even this article from Bloomberg quotes a business professor saying that futures "reduce the friction of going short". It just makes it easier, that's all.

To be honest, am not really sure why people seem to think Bitcoin futures are the best thing since butter. Yes, perhaps it will draw in more investors (in my mind, gamblers) who see Bitcoin as an incredible shorting opportunity, but people don't realise that there already is a huge and active shorting instrument. It's called the altcoin market. Ask anyone who's bought alt/btc pairs in the past months how well shorting Bitcoin's done for them ;)