Low-Risk/High-Reward Bitcoin Play

Hey There Income Hunters,

 

I am on the record saying Bitcoin is going much higher.

 

And I’m already seeing signs of a base building. 

 

The Bitcoin USD (Ticker: BTC-USD) chart illustrates consolidation just below the 200-day moving average, with declining volume.

 

This is not indicative of a strong bear market.

 

 

Bitcoin also received a few words of encouragement from a couple of investors — who just happen to be two of the greatest of all time.

 

Ray Dalio, longtime CEO of Bridgewater Associates, one the largest hedge funds in the world, was initially a cryptocurrency skeptic. But this week he told an audience at the CoinDesk’s Consensus 2021 conference that he has been buying Bitcoin.

 

He also said that once there is more of a buildup of savings invested in Bitcoin, he would rather own the crypto than own a government bond.

 

Now that raised some eyebrows.

 

Carl Icon, who is one of the most famous and successful activist investors of all-time, told Bloomberg TV this week that he is interested in getting into crypto in a “big way.”

 

He said he is looking to put $1 billion into alternative crypto currencies.

 

I believe that qualifies as big.

 

This is the kind of institutional support that will lift Bitcoin to new all-time highs and today I am going to show you how to play for a Bitcoin rally — while avoiding the wild volatility

 

Click here for FULL TRADE DETAILS, including: entry price, stop-loss price, target price and timeframe for a low risk/high reward play on Bitcoin …

 

Riot Blockchain (Ticker: RIOT)

 

RIOT is a top Bitcoin miner that has gained a massive advantage over its peers, Marathon Digital Holdings (Ticker: MARA) and HIVE Blockchain Technologies (Ticker: HVBTF).

 

You see, the metric used to value Bitcoin miners is not reflective of performance, since it only represents the value of the coins when they were actually mined …

 

It’s similar to unrealized gains — the miners don’t show a profit until they actually cash in on their Bitcoin.

 

Now, RIOT has just completed the genius acquisition of Whinstone US. North America’s largest bitcoin hosting facility. (Such facilities rent out mining equipment to Bitcoin miners.)

 

Whinstone currently operates 95,000 machines for institutional clients. RIOT’s acquisition allows the company to diversify its revenue stream on a cash basis and differentiate itself from MARA and HVBTF.

 

In short, RIOT is in a market-leading position.

 

Technical Setup for RIOT

RIOT is in a very different position than Bitcoin from a technical perspective, as its price has been consolidating above the 200-day moving average.

 

Buying volume, meanwhile, has been greater and consistently above daily MA volume (orange line along top of volume bars).

 

 

Vertical Option Strategy

 

This is a great setup for a vertical option strategy, and I’ll show you why.

 

First, we find the fair value for the 15-strike differential 30/45 call spread …

 

The reason I picked a 15-strike differential is because the price of the 30-strike straddle (30-strike put + call price) equals 16. So, 16 is the market=determined probable RIOT price move to the Sept. 17 expiration:

 

 

Now, check out the low-risk/high-reward scenario this trade offers me. Per contract, I risk $348 to make $1,500 — or a 4.3-to-1 ratio. 

 

Pretty good!


However, the true risk/reward is even more heavily skewed in my favor. Let’s look below …

 

 

If RIOT’s price goes down, delta on the downside is only .61-.39 or -.22. So for every $1 RIOT goes down in price, the position only loses $.22.

 

Let’s go through the numbers …

 

      • I am going to buy the call spread when RIOT’s price reaches $30. This is to gain added confidence the price is breaking out of the consolidation range.
      • I will stop myself out on a close below $25.87, which is the low from May 26, the day RIOT broke out of consolidation. 
      • Let’s say I get stopped-out at $25. I lose 5 x $.22, which is $1.10 — or $110 per contract instead of the max loss of $348.
      • On the upside, if I am right and RIOT’s price trends higher into expiration, my profit is calculated at 100 delta.
      • For instance, if RIOT settles at 40, my revenue is $1,000. So my true risk reward in that scenario is closer to 10-to-1.

 

Bring It Home

Remember:

 

      • Expiry is the critical decision for the call spread. You want to reach your target price close to the expiration date. This allows you to maximize your return since delta peaks at 100% at expiration.
      • You always want to leave a stop-limit order to be most efficient with the trade. You want to use the technical setup to determine where you are wrong and stop yourself out there.
      • Being efficient with execution maximizes return.

I have call spreads on 80% of the trades I do because they provide me with leverage at a very low cost. The only variable is the expiration date …

 

Could RIOT trend higer to 45 before September? Sure, but my objective choice is based on the macro picture. I want enough time for passage of the Biden infrastructure spending bill, so that’s why I went that far out.

 

This will be a good one to watch as I look for more trades.

 

Until then …

 

Live and Trade With Passion My Friends,

 

Griff

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