🧘♂️Ready to Level Up? #110
Market Meditations | March 3, 2021
Introduction to Trading Crypto Options
We did it. We are back in the +$50k club ?
Let’s celebrate by exploring today’s hottest topics in DeFi and Crypto.
Our main article provides an exclusive introduction to trading crypto options. For those who are looking to level up their trading and investing ?
Read, enjoy and share with your network. Let’s all build wealth together.
Crypto. Applause, laughter and joy filled the crypto streets today as Bitcoin retook $50k: a key level for bull revival. Now before you pop the champagne, securing a foothold about this level is key to the resumption of a broader uptrend and a move toward new record highs. Some have attributed the move to events in legacy markets ?
Legacy. A central theme in legacy markets today was dollar weakness. Since stores of value such as gold and Bitcoin are priced against the dollar, in theory, a weaker dollar should have a positive impact on the price of BTC. Biden’s $1.9 trillion stimulus package, which is likely to be approved in the next 2 weeks, is likely a driver of USD weakness.
Delighted to say this article is brought to you by FTX?, you can use my link to get a discount. We also have a comprehensive ? FTX tutorial ? which includes: a step by step on how to open an account, deposit and withdraw funds, place a buy or sell order and stop loss.
? We will be funding 2 FTX trading accounts a month with $500 dollars and you’ll get a coaching call with Koroush to start your journey. To participate, join our ? Telegram ?
$75K Bitcoin by May?
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Here’s a fact. Institutional investors (aka big money ?) project a Bitcoin price increase to $75,000 by May ? According to options market data, “block traders purchased both bull call spreads at $75,000 and $100,000 strike call options” that expire on 28 May. Woah..call spreads? Strike? Expire? What’s all this mean? In this article, we’ll break down what crypto options are, how you can trade them for profit, and what risks to watch out for ?
What’s the difference between buying Bitcoin versus buying a Bitcoin option ?? The former involves buying (or selling if you are shorting) the asset outright. The latter involves you paying a small fee for the right to buy (or sell) the asset at a fixed price at a future date. Here’s how it works ✏️
There are two main types of contracts when it comes to options trading: calls and puts. A call option gives the buyer of the option the right, but not the obligation, to buy an asset at a specified price (“strike”). A put option gives the buyer the right, but not the obligation to sell an asset at a strike price ✅
In order to reserve this right, you must pay a small fee known as a premium ?. As the value of the asset moves, so does the value of the premium. If you bought call options on Bitcoin and the price of Bitcoin increases, your premium value ? goes up.
When buying a call or put option, you must choose when the option expires. This is known as the expiration date ?.
When institutional investors buy $75K call options that expire on 28 May, they have paid a premium to reserve the right to buy Bitcoin at $75k on 28 May. This strategy is only profitable if Bitcoin trades at or above $75k at that time. Because, you can buy at $75k and sell at the current, higher, price ? Let’s say you decide to take on the same trade by buying the same call option with the same expiration.
Three things can happen
✅You are right and Bitcoin is above $75k on 28 May. Now, you can choose to “exercise the option” (actually buy Bitcoin at $75k and add it to your portfolio to sell later)
✅You are right, but instead of exercising the option you instead “flip the premium.” This strategy involves you selling the premium at a higher price than what you paid initially.
❌You are wrong and Bitcoin is not above $75k on 28 May. If this happens, you lose your entire initial investment of the premium and the option expires worthless.
Here are some pros and cons of buying options versus buying the underlying asset that you may want to consider as a responsible trader or investor:
It requires a lower up-front financial commitment ?. Buying 1 Bitcoin at $50,700 on ? FTX, for example, would cost you exactly $50,700 (at this time). The premium to control 1 Bitcoin, however, costs drastically less (generally each option contract gives you the right to control 100 Bitcoin, but the point we’re making is that buying options requires less up-front capital).
There is limited downside ? for buyers of option contracts. If you’re wrong about the trade, the option contract simply expires worthless and your losses are limited to the premium you originally paid.
It allows you to ?“lock-in” a price. If you believe Bitcoin is going to $100k+ by January 2022 (note this is a hypothetical) wouldn’t you like to reserve the right to buy Bitcoin at $50k at that time? By exercising the option, you’re locking in 100% gains (provided that you’re right about the trade).
You have to be right about the asset’s direction ? AND timeframe ?. In the example above, if Bitcoin trades at $75K on 29 May instead of 28 May, your option still expires worthless.
If you’re looking to “flip the premium,” option premiums are highly volatile ?. If your trade goes against you, the value of your premium can drop aggressively and rapidly (the most you can lose, however, is the entire premium as discussed above)
This goes without saying, but please do not start trading options if you do not understand the risks. Take this article as a starter, not a main course. Options traders are known to show their big ROI, but as is true of anything with high reward, there is also high risk. Make sure to check out our Market Meditations podcast episode ? #26 Options Trading, Algorithmic Trading and Leaking Alpha with Altcoin Psycho, to learn more ?
Now, let’s make sure we understand what’s going on in the crypto markets ?
FTX Supports Deposits from PayPal?
Users of the cryptocurrency platform FTX can now use PayPal to deposit fiat into their trading accounts ? The service allows users to deposit almost any currency (since PayPal has a built-in currency converter) and use credit cards to fund accounts ? This news may seem small, but the retail mania it could bring may just be what is needed to kick off a parabolic price advance for Bitcoin, Ethereum, and Altcoins very soon.
? One drawback of cryptocurrency is that new and inexperienced people simply don’t know where to begin when it comes to buying Bitcoin. Exchanges without the ability to deposit fiat (i.e. you can only deposit cryptocurrencies) make it especially difficult for the average user because it is a process that’s completely unfamiliar to them ? The implication is that many don’t invest in Bitcoin because they simply don’t know how. FTX’s integration with PayPal means that new users have a familiar way to deposit funds into an exchange ✅
We know price is a function of supply and demand. People who previously wanted to buy Bitcoin, but were not used to certain functionality, now have the ability to get involved. In other words, more demand is present with a fixed supply. Basic economics tells us that this is the recipe for price appreciation…?
Next, we have our tweet of the day to add some sunshine to your day. Followed by the latest in DeFi ?
TWEET OF THE DAY
DEFI NEWS & ANALYSIS
Insurance Giant Turns to DeFi
At this point, we are all used to hedge funds and asset managers joining the crypto space. One sector of the financial services industry is still testing the waters: insurance companies ? In a recent positive headline, insurance giant Aon announced it is exploring DeFi ?
According to the announcement, Aon (the world’s second largest insurance intermediary) has embarked on a pilot with Nayms, an insurtech platform that allows cryptocurrency holders to provide decentralised insurance cover over losses due to hacks or buggy software ? Also involved in the project are Relm Insurance, a Bermudian insurer that specializes in digital assets, and Teller Finance, an automated matchmaker between investors’ assets and crypto risk liabilities.
“The Nayms platform puts the tool of smart contracts in the hand of regulated underwriters (like Relm) and brokers (like Aon), to open up a new capital source when underwriting crypto risk,” Nayms CEO Dan Roberts said via email. “This could be in either crypto (ETH, BTC) or in fiat (via a stablecoin). Aon is assessing both options as part of longer term programs.”
? As is the narrative with hedge funds and asset managers, new entrants in the space provide validation for DeFi. This is helpful in creating liquidity, demand and supporting price.
✅ However, when it comes to insurance companies, there is more: insurance companies are amongst the more financially conservative institutions. This is in contrast to hedge funds which are amongst the most risk seeking. And so, the entry of insurance companies has the added benefit of making DeFi more accessible to lower risk and conservative investors. There was a similar sentiment at the time MassMutual bought $BTC:
We’ve got a question for you about a certain NFT and then we share our podcast ?
How much did this rare Homer Simpson Pepe NFT sell for on Monday?
Answer further in the article ?
Crypto Gems, Networking and Finding Happiness with CryptoMessiah
CryptoMessiah is a veteran crypto investor who has now been active in the space for over 7 years. He has built several successful communities, identified multiple successful projects and is currently working with Hxro.
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Add value to projects you invest in. Get involved with the community, give feedback on their product, and make suggestions for its future.
Empathy is key to being a successful salesman. Understand the feelings of the buyer and walk them through their emotions.
Always do your research before investing. ? Vet the team behind the project, their community and whether there are any real cash flows backing up the product.
Money does not buy happiness. Once you can afford basic necessities, the key to finding happiness is pursuing what you are passionate about.
Networking is essential to finding crypto gems.? Be someone others want to work with by adding value to them and you will form a network that far exceeds your capabilities as a solo investor.
Never go all in on one project. No matter how high your conviction, projects can always go wrong and if 100% invested, you will lose everything. ❎
If you want to outperform the market, make concentrated investments in 3-6 projects you believe in. If not, simply purchase Bitcoin and Ethereum and be content tracking the market’s performance.?
Find projects that are undervalued. One method is to consider projects that fill a new niche that has not been fully explored by the market.
If you are looking for a 5-10x multiplier, invest in the right market caps.? It takes a different calibre of money to turn a $1bn market cap into a $5bn market cap then it does a $50m market cap into a $250m market cap. Understand your strategy and invest accordingly.
Homer Pepe sold for 205 ETH. About $321,440 at the time of the sale. The seller had bought the collectible for $38,500 and the price increased by over 700% in under 3 years. NFTs are here to stay. If you want to get started on the action, check out our ? Introduction to NFTs.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.