Fall Down Seven Times, Stand Up Eight

Hey Traders,

Yet again, one of the hot topics of the week is everybody’s new favorite currency … Crypto!

Just in case our boy Bitcoin hadn’t taken it on the chin hard enough after a very public Tesla (Ticker: TSLA) rebuke, China reiterated their hardline “no'' stance on crypto, and the U.S.treasury called for more regulation of cryptocurrencies. Risk-averse investors seemed to be ready to rid themselves of their holdings, prompting a pretty big slide in decentralized currencies.

But of course, if there’s one thing we seem to be learning time and time again, the blockchain motto seems to be “can’t hold us down!”

Chart courtesy of StockCharts

Now, checking the current balance in your crypto wallet might not be the best idea, as far as your mental health goes.

But if you’re an opportunistic options trader (like I am!), you could use crypto crashes like these to help you make some “real money” moves.

Here’s what I mean.

This week, we had several factors weighing on crypto, from broader investor apprehension, more Elon Twitter action, U.S. Treasury threatening to spoil the fun, the Chinese government refusing to join the party … And so on.

The thing is … I don’t think any of these things are a “death knell” for crypto.

I think crypto can and will stage a comeback in the days (or even weeks) ahead, and it’ll drag crypto-based stocks along for the ride.

But I’m not here to tell you to “buy the dip” on Dogecoin.

Rather than looking at cryptocurrencies themselves for profit opportunities, I’m looking more to Wall Street crypto stocks for my plays.

That’s where I think there’s some real opportunities …

I’m not talking about buying these stocks …

And right now I’m not even talking about buying options on these stocks …

I’m saying I think crypto is going to bounce back, and dips like these create prime opportunities for put-selling on crypto-based names.

Let’s Start A RIOT

Riot Blockchain (Ticker: RIOT) has been having a heck of a 2021. 

As recently as November 2020, RIOT was churning around the $3 mark.

In December, the shares broke over $10 …

And in February, RIOT peaked at $79.50!

Chart courtesy of StockCharts

But, as you can see, that high was short-lived, and the shares are now parked back around $22.

Although they’ve been sliding lower as of late, they’re also now teetering on “oversold” territory, with a Relative Strength Index (RSI) of 33, indicating that this downtrend could be ready to reverse.

Now, looking at RIOT options, one contract in particular caught my eye … The January 2022 10-strike puts. 

As of Wednesday, these contracts were selling for as much as $1.85, with seven months remaining until expiration. By Friday, the same contracts were selling for $1.96!

Friday afternoon, RIOT January 22 10-strike puts were selling for $1.96.

To me, getting $1.96 for selling puts that are still more than $12 out-of-the-money even after this week’s crypto crash seems like an incredible risk/reward opportunity.

You have tons of chart cushion to the downside. RIOT would need to lose more than half of its value to break that line in the sand.

Now, it’s not impossible, especially with volatile crypto stocks. 

But to me, it seems relatively unlikely, and taking a put-selling strategy on this name seems like a great way to put money in my pocket.

It’s a Marathon, Not A Sprint

And RIOT wasn’t the only blockchain-sensitive stock that caught my eye.

Marathon Digital Holdings (Ticker: MARA) also had a pretty similar risk profile on its January 2022 10-strike put.

When I scoped this trade out on Wednesday afternoon, these contracts were selling for $2.34!

The bid price declined slightly as crypto recovered, but I still think this is an attractive trade.

Like RIOT, MARA is down from its 2021 highs ($57.75) but the shares are currently consolidating near $20. That’s well above the $2.00 they were trading at as of last November!

What’s more, like RIOT, MARA’s RSI is teetering on “oversold” territory.

Again, it’s not impossible that MARA could totally bite it, especially in the case of a broader crypto sell-off.

But again, I think it’s relatively unlikely these shares will drop by more than 50%.

Chart courtesy of StockCharts

I can’t overstate this enough: put-selling is risky.

And put-selling based on cryptocurrencies … well, I think you can surmise that adding crypto to the mix hardly stabilizes anything.

But sometimes high risk means high reward. 

However, you really need to be “on the ball” when it comes to making opportunistic plays like these. As we’ve seen, crypto comes back up sometimes as quickly as it goes down, so these put-selling opportunities aren’t always present for very long.

But whenever I see crypto taking a plunge, I like to check for potential crypto-based plays on stocks like RIOT, MARA, and Coinbase (Ticker: COIN). I’ll even take a look at less obvious crypto-sensitive stocks like Visa (Ticker: V) and Square (Ticker: SQ)

You never know where you’ll find your next opportunity!


Your Only Option,

Mark Sebastian

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