Bitcoinmania is back and prices have risen 50% in the last week. How can you trade it? Bitcoin is volatile, both on the upside and down, and it also doesn’t offer a steady income stream.
Options are a great way to generate income. We also get exposure to blockchain technology.
Coinbase (COINWe could also look into options income strategies for that stock.
Another, perhaps less volatile way, would be to trade covered calls on the Amplify Transformational Data Sharing ETF ( BLOK).
Although this exchange traded fund can still be volatile, it should be less volatile than Bitcoin or some crypto stocks.
BLOK includes stocks of companies involved in the development and use of blockchain technologies such as PayPal (PYPL),Square (SQ), Marathon Digital (MARA (Nvidia (NVDA).
Let’s take a look at what a covered call trade might look like on BLOK.
How to Trade Bitcoin: Building The Covered Call
A 100 share purchase of BLOK would run around $5,100.
Monday’s trading price for a September-expiration 55 call option was $1.55 per share. This generated $155 in premium per contract.
The call option can be sold for a total of 3.13%, which is equivalent to around 30% annually.
The trade also has upside potential by selling the call out-of-the money.
If BLOK closes higher than 55 on the expiration day, the shares will be called out at 55. The trader will make a total profit $555 (gain from the shares purchased at 51 per share plus the $155 option bonus). This is a 10.9% return.
The downside to trading this Bitcoin-linked ETF, however, is the possibility that it could drop. This could result in a loss of any profits from selling the call.
Remember that options can be risky and investors could lose all of their investment.
This article is not intended to be a trading recommendation but an educational tool. Always do your research and consult your financial advisor before you make any investment decisions. He is a specialist in income trading with options. He is conservative in his approach and believes patience is key to trading success. Follow him on Twitter @OptiontradinIQ