Ideas For Bitcoin Bulls: Taking Advantage Of Fear, Uncertainty, And Doubt By Selling Cash-Secured Puts On These Two Stocks

Pseudonymous cartoonist "Stonetoss" on Bitcoin volatility.

Taking Advantage Of FUD

In our previous post (Crypto: Look Out Below), we mentioned a Bitcoin-related long idea, Cleanspark CLSK: 

Cleanspark sells software to manage energy microgrids, but the company also mines Bitcoin using, reportedly, 95% clean energy, which is notable, given Elon Musk's recent complaints about the amount of coal burned to mine Bitcoin BTC/USD. It might be worth keeping an eye on if you think crypto will bottom out soon.

We noted there that it was expensive to hedge with put options:

As of Tuesday's close, it was too expensive to hedge against a greater-than-20% decline over the next several months using optimal put options...

This and similar screen captures are via the Portfolio Armor iPhone app.

That's worth of further elaboration. First, let's look at the other Bitcoin-related name that popped up in our top ten on Wednesday. 

Two Bitcoin-Related Top Names On Wednesday

Cleanspark appeared among our top ten names again on Wednesday, along with another Bitcoin-related name, Microstrategy MSTR. 

Screen capture via the Portfolio Armor website. 

Readers may recall that we wrote about MicroStrategy's CEO Michael Saylor in a previous post (How The Next Crash Happens). He's a huge Bitcoin evangelist, one who encouraged Elon Musk to put Bitcoin on Tesla's TSLA balance sheet. 

As it happened, Tesla announced it had added Bitcoin to its balance sheet in early February; since then, you know the story. 

Extremely Expensive To Hedge With Puts

Due in part to the fear, uncertainty, and doubt surrounding Bitcoin now, both MicroStrategy and Cleanspark are extremely expensive to hedge with puts. As of Wednesday's close, the smallest decline you could hedge MSTR against over the next several months with optimal puts was one greater than 31%. 

That protection, calculated at the ask, would have cost more than 29% of your position value. 

Similarly, for Cleanspark, the smallest decline you could hedge it against was >37%. 

The cost of that protection was more than 36% of the position value. Interestingly, the optimal puts in CLSK's case were in-the-money, which is fairly rare.  

Flipping It Around

We normally write about hedging, but if you're a long-term Bitcoin bull and are convinced it's going to hit new highs, you might want to consider selling cash-secured puts on CLSK or MSTR here. If the stocks are below the strike prices of those puts at expiration, you'll be obligated to buy them, but if you're a Bitcoin bull, owning a Bitcoin miner and a company with lots of Bitcoin on its balance sheet should appeal to you. If the stocks close above the strike prices on their respective put options, those puts will expire worthlessly. In either case, you'll keep the premium you collected from selling the puts during the crypto crash.