Issue #200 - Strangle on IBIT
Strangle on IBIT...
Trades are for educational purposes and not a recommendation or financial advise.
Market Scorecard
Market is slowly grinding back up.
Trade Scorecard
IBIT Call Ratio (Update)
IBIT continue to move sideway, one day down one day up. It is now trading at $54.78 way below our entry price level of $56.35. The trade is in a loss for now. The short call is positive though protecting the trade on the down move.
Trades are for educational purposes and not a recommendation or financial advise.
STRANGLE ON XBI (UPDATE)
XBI is now trading at $92.46, up around $2 from entry. It is well trading within the range and the theta decay is doing its work. Trade is now in positive territory. Let the trade run and watch the risk on upside. There should be some resistance at $95 though.
Trades are for educational purposes and not a recommendation or financial advise.
STRANGLE ON IBIT
We have explained the IBIT ETF in our newsletter Issue # 198. IBIT is an ETF which invest in Bitcoin and its price moves very much in correlation with the price of Bitcoin. As Bitcoin price failed to maintain above $100,000, it has traded sideways since and trading sideways between 94,000 to 98,000. It is currently trading at 96,000.
The chart below shows price of IBIT against Bitcoin. It trends together with Bitcoin.
If Bitcoin continues to trade sideways, the strangle strategy will be a good trade using IBIT where we collect premiums by selling an out of money call and out of money put.
You will need to understand the risk of a strangle is if price goes beyond the strikes of the short call and short put. You will be assigned the shares and on the short call side, assignment means you are shorting IBIT or indirectly Bitcoin. It is a risky situation as cryptocurrencies, if it goes wild, it can really go up very fast. Being in a short position is not going to be nice. However, if you have already exposure in Bitcoin (whether directly or through IBIT ETF), these holdings will offset the loss of your short position in IBIT. Just remember one options contract is equivalent to 100 IBIT shares and roughly 0.06 bitcoin.
On the other side, the short put if it goes in the money, you have to be ready or willing to pick the shares up when assigned. That would be deemed your buy into the bitcoin exposure at a discount as the premiums on the strangle, you will keep in full.
Once you understand your trade risk, you can then consider using IBIT to generate income or to get exposure into bitcoin.
Trade Entry ( DTE 21 March)
IBIT is trading now at $54.78. The expected move till 21 March is +/- $5.02. Means it will move between $59.8 to $49.76.
We will choose Delta 16 on each side of the trade. Which works out to:
Selling a Call at Strike 64
Selling a Put at Strike 46
Both strikes are outside the expected move which means we have higher security for the strikes not to go in the money.
Premium collected is $1.28 per contract.
Buying power blocked is $1527 per contract. Based on blocked buying power, the return on investment is 8.3% for 30 days. The trade has a 73% probability of profit and 87% probability of profit at 50% max profit.
Roughly, the strikes will work out to Bitcoin price trading between 84,000 and 112,000 a 16% move up or 12% move down from current Bitcoin price in the next 30 days.
Trade Management
Best to close the trade when reaching 50% of the max profit.
As the bigger risk is on upside, if IBIT price moves upwards to the short call strike, close the trade if loss is 2 times the credit received.
We would not encourage rolling trades in time if short call gets tested as this is cryptocurrency and the volatility can be extreme.
On the other side, if the short put gets tested, you can get assigned the IBIT shares get exposure to holding bitcoin related assets or you can continue to roll the short put in time for more premium. The short call will expire worthless and you get to keep that side of premium.
Please be reminded that investing or trading in cryptocurrency or related assets is highly risky and be ready to make a full loss of your investment. No pain no gain…
Trades are for educational purposes and not a recommendation or financial advise.
DISCLOSURES
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options: https://www.theocc.com/components/docs/riskstoc.pdf
MYstyework is an Online Financial Literacy Educator and materials provided is solely by MYstylework and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. MYstylework, through its contents, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. MYstylework is not in the business of transacting securities trades or an investment adviser.
after IBIT crashed last week, this week it went back into the range. Trade is back into profits 😏
The trade has moved down 1.5 standard deviation since entry. trade is in loss but still within our trade limits. we put a 0.05 GTC order on the short call leg to close the short call side. as we have taken most of the extrinsic value of the short call we will want to close that side. if IBIT rebounce there will be no friction for the short put to recover from losses. if we do not close the short call the profits of short call will reduce and offset the loss recovery of short put. this just make the trade recovery faster. lets see if it gets filled😅The trade has moved down 1.5 standard deviation since entry. trade is in loss but still within our trade limits. we put a 0.05 GTC order on the short call leg to close the short call side. as we have taken most of the extrinsic value of the short call we will want to close that side. if IBIT rebounce there will be no friction for the short put to recover from losses. if we do not close the short call the profits of short call will reduce and offset the loss recovery of short put. this just make the trade recovery faster. lets see if it gets filled😅