The Puzzles of Bitcoin Options for Ordinary Investors
The landscape of Bitcoin investing is littered with peculiarities. One of the oddest is the bizarre trade in options on Bitcoin equities.
Investment ideas and observations about the real markets we know and love.
The landscape of Bitcoin investing is littered with peculiarities. One of the oddest is the bizarre trade in options on Bitcoin equities.
As I described in an earlier article, many investors holding Bitcoins naturally look for ways to put those Bitcoins to work, and several worthwhile opportunities are available. But there’s also a whole class of investments which carry quite a potential sting in their tail.
Many investors holding Bitcoins naturally look for ways to put their money to work via investments that can generate capital growth, income, or both. Several worthwhile opportunities are available in the Bitcoin space, but one commonly mentioned trading method needs a crystal ball to work well.
Investors who wrote the Apple puts I suggested in April can either lock in their gains now or await further gains at August expiry. The catch? Waiting for further gains introduces extra risk from the possibility of a market overreaction following earnings next week.
Seemingly overlooked in the hoopla about the Winkelvoss twins filing to create a Bitcoin ETF is a simple fact: if approved, the trust may rapidly supplant Mt. Gox and other exchanges as the principal price discovery mechanism for the cryptocurrency.
One of the most frequently cited benefits of cryptocurrencies such as Bitcoin is the enhanced level of privacy which such currencies can provide. It’s easy to conflate privacy and anonymity, however, and ironically enough, preoccupation with anonymity risks both undermining privacy and impeding the wider acceptance of Bitcoins as a currency for conducting business.
One well researched investment strategy keeps a large chunk of capital in ultra-safe government debt and deploys the remainder — say, 10% over the course of a year — in call options. Calendar spreads can provide an attractive follow-up for this strategy, enabling an investor to exploit downturns like the recent June swoon.
PsychologicalInvestor.com provides market analysis and commentary, not investment advice. No warranty or representation, either expressed or implied, is given with respect to the accuracy, completeness, or suitability for purpose of any view or statement expressed on this site. Information on this site is not an offer, nor a solicitation, to buy or sell any securities mentioned on the site.