Russell Rhoads, PhD, CFA from ListDer Research <russellrhoads@substack.com> Unsubscribe 11:42 AM (1 hour ago) to me Bitcoin Option Spread Targeting Sub $39,000 By Late Feb Trade Of The Day For January 19, 2024 RUSSELL RHOADS, PHD, CFA JAN 19 Since everyone else is talking about it, we decided we had to jump on the bandwagon and talk about a Bitcoin trade. Spot Bitcoin ETFs are brand new, and options are not available. Bitcoin futures have been around for years, trading at CME Group since late 2017 and options on those futures have been our go option market for the leading cryptocurrency. We believe a trader legged into a short call, long put position using options expiring on Bitcoin futures in late February. The first leg came with the February Bitcoin (BTCG4) future at 41665 as a trader sold 30 of the BTCG4 Feb 47000 Calls for 730. About 90 minutes later, with BTCG4 at 41155 the second leg of this spread was executed with a purchase of 30 BTCG4 40000 Puts for 2025. The net result was a cost of 1285 per spread and a payoff in late February that appears below. Note the break-even level for this trade on the downside is 38715. This is the point where the put value equals the cost of the trade. Below that figure the trade will return a profit to the extent BTCG is below that price point. The risk to this trade is to the upside begins with the short call strike of 47000, where this call is in the money. This trade structure is more common as a hedge, where upside risk is offset by a long position in the underlying. The long put protects against moves below the strike price. This second payoff diagram assumes a long position in the future at 41415, the mid-point of the futures pricing between the two executions above. The previous payoff appears on the diagram above, with the second payoff combining the option spread with a long position in bitcoin. The worst-case scenario if this position is a collar, is a loss of 2700, at any price from 40000 or lower. To the upside, profits are limited to 4300 as the long BTCG position is offset by short calls.