Ed Carpenter Racing's Bitcoin-sponsored number 21 Chevrolet came in 5th in this year's Indy 500.

Short Squeeze, Crypto News Boost Silvergate

A Top Name Of Ours Over The Summer

Regular readers may remember that we mentioned Silvergate Capital was one of our top names this past summer. For example, we pointed out it was one of our top ten names when Bitcoin was trading below $40,000 at the end of May ("A Hedged Bet On A Bitcoin Bottom"): 

Since then, MARA and SI have posted attractive returns, while RIOT has lagged so far. 

Incidentally, MARA and SI are now in business together:

If you're long SI and you're worried it might give back some gains in the near term, below are a couple of ways of adding some downside protection to it now. 

Adding Downside Protection To Silvergate

On Tuesday, if you were looking to hedge 500 shares of SI against a greater-than-24% decline over the next several months, here were two ways of doing so. 

Uncapped Upside, High Cost

Silvergate was extremely expensive to hedge with puts on Tuesday, as you can see below. 

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

The cost of this protection was nearly as large as our decline threshold: 23.99%. 

Capped Upside, Negative Cost

If you were willing to cap your possible upside at 24% over the same time frame, this was the optimal collar to hedge against a >24% decline:

Here the cost was negative, meaning you would have collected a net credit of $3,800, or 4.97% of position value, when opening the hedge. To be conservative, that cost assumes you placed both trades (buying the puts and selling the calls) at the worst ends of their respective spreads. 

Eliminating Your Upside Cap

In the event Silvergate pulls back significantly, an investor hedged this way may be able to buy-to-close the call leg on his collar for a fraction of the net credit, eliminating his upside cap. Alternatively, if you think Silvergate might get acquired for a large premium before next May, you can try scanning for a hedge expiring sooner in the event there's a crash within the next few months.