As the market surges, continuing the bull run that began last Friday, I’m back trading a name that has been very good to me in the past…
In case you haven’t guessed … I’m talking about the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO), which directly tracks the price of Bitcoin (BTC).
You see, when the price action in the stock market aligns with that of another crazy sector — cryptocurrency — incredible trade setups can emerge.
Sure enough, that’s what happened yesterday…
Ethereum (ETH) — the second-most valuable cryptocurrency by market cap — was up 4.5% over the weekend…
BTC, on the other hand, was still trading flat at Monday’s open.
Because I know how closely this duo tends to trade, I saw this as a clear call-buying opportunity in BITO.
I figured if ETH was outpacing BTC by that much, BTC was bound to close the gap sooner rather than later.
Furthermore, I’ve traded BITO so often that I’ve become very familiar with the personality of the chart … and that’s always a plus!
Keep reading and I’ll show you exactly how I developed and executed this trade for a 61% overnight gain…
Why I Traded BITO Calls
At the start of this week, a slew of cryptocurrencies (and crypto-related stocks) were ramping while BTC was doing nothing…
Marathon Digital Holdings Inc. (NASDAQ: MARA) and MicroStrategy Incorporated (NASDAQ: MSTR) were both up double-digits on Monday.
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This has nothing to do with shorting crashing stocks…
So I know what I’m saying sounds like it shouldn’t be possible…
But these are hidden moves that have soared as high as 102%, 172%, 217%.… on days most other stocks sell off.
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Additionally, the S&P 500 ETF Trust (NYSEARCA: SPY) has been surging over the past several days.
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I’ve certainly been taking note of the bullish SPY action. It’s been impossible to ignore.
But when I noticed that BTC wasn’t moving yet, I got very intrigued.
Because when BTC lags behind the broader crypto market, it almost always catches up. And vice versa.
(Crypto and stocks have also been trading pretty closely over the past year. I viewed SPY’s strength as another catalyst for a potential BTC pop.)
I know these things because I’ve followed cryptocurrency since its inception and traded BITO many times in the past.
In fact, my biggest trade of all time was a massive puts trade on BITO back in March.
By studying this chart for so long, I’ve learned its unique personality.
Now, when an opportunity like this one shows up, I’m ready to strike.
But what prompted me to choose the strike and expiration date I did? And how did I determine when it was time to sell?
How I Traded BITO Calls
As I mentioned earlier, my main thesis for approaching this trade was ETH’s 4.5% move over the weekend.
So, when it came time to pick a strike price for my BITO trade, it was simple…
I looked at contracts that were 5-10% out of the money and saw some volume coming in on the $12.50 strike.
This matched up pretty closely with my price target.
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Furthermore, one of my favorite things about options trading is that I can design my positions to fit the time horizon of each particular setup.
My BITO trade this week is a good example of this…
I was confident of a short-term move and nothing more. Because of this, it only made sense for me to buy short-dated contracts.
If I thought BTC was about to make a big, multi-week run, I’d buy longer calls.
But when I’m playing a quick bounce, I’m always buying contracts that are one (or two) weeks out at most.
So, yesterday I bought 300 10/28/2022 BITO Calls for $0.09.
Today, I sold them for $0.14 … a gain of 61% overnight!
That said, I sold my contracts a bit too early. They ramped to $0.19 after I sold.
As a perfectionist, I wish I could’ve nailed that final chunk of upside…
But I need to remind myself that a win is a win!
Congrats to anyone who profited on this play with me!
The success of this trade is a reminder to keep volatile names on your watchlist, study the charts you should familiarize yourself with, and focus on picking the correct strikes and expiration dates.