Looking at Bitcoin Strangle

If the consolidation that started around 10pm Eastern yesterday turns out to be 50% then Bitcoin could reach 38,000. But I could still get out around here for a nice profit. My options expire on Friday so I can’t really go much longer.

Okay, I’m out.

Entry Trade: BITO 10/27, C15 0.47, P15 0.32, 0.79 total price.

Exit Trade: C15 2.92.

I’m still holding the put side, but I fully expect that it will expire worthless unless there is a huge crash which is not very likely.

So on a total price of 0.79, I profited 2.13 which is a 269% profit. Now as usual, I’m sure that Bitcoin will break even higher and take off overnight now that I’m out. But Bitcoin was showing a negative divergence on a short term 5-min chart so I got out to be safe. Yes, even if it actually turns down, it could very well be a temporary downturn and it could reach higher highs later, but my options expire in a couple days so I felt it was just better for me to take what I have today.

Here’s the latest charts:

First, TradeStation didn’t have Bitcoin on it’s equities charting, and there seemed to be a slight drag (couple-few minutes) on Yahoo Finance, so I found another Charting platform that had it in real time (TradingView) I’ll probably use it in the future to track Bitcoin, but I’m not likely to use it for much more because it is easier to use TradeStation (my main trading broker) for equities.

I decided early on from recent action that 35,000 would be an important level. Yes, specific numbers to the penny are not very meaningful when you have prices in the tens of thousands, but I decided that 35,000 is a round number that is likely to have at least psychological importance. As it approached 35,000 today it formed a 2-point negative divergence at around 15:00 on the chart (that’s 11:00am Eastern, Bitcoin is traded in GMT). I decided that I would not exit on this divergence, because I really thought that a break of 35,000 was likely. As the chart shows it bounce off the 35,000 resistance area many times before breaking it.

Now another thing I will say just to teach people how I see things. Resistance (35,000 in this case) is caused by a number of factors. Trader might be waiting at that level to sell because that is where they bought long ago and they have been losing money for a long time and now can finally exit without a loss. Maybe a trader is waiting for this number to sell short because they think it will prove to be resistance and go down. Maybe people just like this number because it is round. There are many possible reasons, but it really doesn’t matter. If I am hoping for a positive price break past this level, then what I want is for all these people, whatever their reasons, to be used up until they no longer exist and the price can move past it to a new short-term high. Now looking at this Bitcoin chart, every time the price hits this 35,000 area over and over, each time it is whittling away the number of traders sitting at this number to sell. The more often resistance gets hit, the more the number of waiting traders is reduced until finally it can break through to another high.

All of this is basic supply and demand, and I felt that every time the price hit this level it was more likely to break through. This was much more likely, in my mind at the time, than a significant negative reversal due a negative oscillator divergence. Supply and demand trumps technical indicators. Now, it didn’t break through by much, but it was enough to marginally increase my profits so I decided to exit before the likely short-term down move.

In the longer term, I am actually thinking that Bitcoin could go higher. Maybe by a lot. But I didn’t feel that it was going to happen today and likely not before my options expire. I’ll keep watching. Bitcoin is still very volatile, and I think that there is almost as good a chance of a significant downturn as there is for a huge continuation rally. I might keep watching for another strangle.

Here’s a longer term chart:

As can be seen in this view, the major up move we just had basically started around 30,000 and went up to around 35,000. If the current consolidation area from yesterday to today ends up being 50% of the total move, then Bitcoin could reach to around the 38,000 area. Maybe I would try a call option around the bottom of the consolidation area, then again, I don’t want to try to catch a falling knife either. It really depends on how it looks.

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Bitcoin is having a positive oscillator divergence right now in multiple time frames indicating that it may be about to reverse in an upward direction. I wish it was a little lower in the channel. I’m probably not doing anything, but I’m watching. Maybe I’ll regret not buying a call.

Bitcoin is looking to me like it is preparing for a big move, I’m just not sure which way. It has been basically consolidating for the last few days after the big surge. Since yesterday, it has been settling into a narrow range that keeps getting squeezed into a narrower range. This is something that often happens right before a bigger move. The following is an hourly chart that shows the big rally and subsequent consolidation:

If the consolidation turns out to be at 50% of the total move, then Bitcoin could reach 38,000. On the other hand there is a negative oscillator divergence that indicates a reversal downward. The thing to keep in mind is that we do not know how long such a reversal will last. It could be that the down turn from 35,000 is already the downturn that the divergence predicted and it is already over and not going down further. On the other hand it could go way down to 32,000 or 31,000.

I might think about a strangle here, however I really don’t like entering any options that are not day trades on a Friday because you lose 3 days of premium right away over the weekend. When you enter a strangle on Friday you are almost guaranteed to be losing money on Monday unless there is a huge move right away.

Just something to watch on a volatile play…

Volume up significantly over the last couple of hours, but still no breakout up or down. I’m still not going to do anything until Monday, but I’m afraid it might move without me.

It did move, but evidently not enough. It looked like it was breaking down, but then reversed all the way back then looked like it was breaking up then it dropped back into the middle of the consolidation area around 34,100. It’s like this price draws it like a magnet.

One thing I notice about this whole October rally is that when it consolidates it always seems stubborn about leaving the consolidation, but when the consolidation high is broken, then it goes up and stays up. Here is a longer term chart than I have been posting:

The current consolidation high is questionable. The first high is the top of a long candle where it is likely to have briefly hit the high then retreated quickly. Just like it did on 10/16, and in that case it was the later high (10/18 4:00am GMT, which is midnight Eastern) that ended up being more significant. In the current consolidation, it could be that the later high (35,133) is more significant.

Again, I am not in any Bitcoin position currently but I am watching it for a possible entry on Monday.

Okay, I felt like it is going to have a big move soon, so I entered another strangle.

BITO 11/17 C18 0.42, P16 0.63 Total Cost: 1.05

Here’s a chart that I started working on like 15 minutes ago.

At the time of my entry, prices were still in the little consolidation area (upper right). This consolidation looked like the prices were trying to break up towards and maybe past 35,000. But at the same time the Oscillator divergence was negative (on many time frames) indicating a reversal downward. Also, if this consolidation were going to break up, the volume was all wrong. Normally when you have a move upward, the volume is highest as you move up, then the volume significantly decreases during consolidation, then increases again as you continue upward. This is the classic pattern. But in this case, volume increased during consolidation which throws into question whether prices will continue upward as usual.

I now notice that prices actually broke downward. Now it is still difficult to say what will end up happening. Prices can still go up from here. If we have a huge rally on high volume like we did on 10/24 then this little consolidation today will look like little volume in the overall 10/24 - 10/30 consolidation.

Me, now that I am in a strangle, I could care less which way it goes or why. I just need for it to make a big move.

Well, this morning it was trying to make a big move upward, and sellers came in to bring it down immediately, then sellers tried to make a big move downward this afternoon, but buyers came in and brought it back up to exactly the middle again. I want to profit, but it keeps teasing me.

Bitcoin breaks out to new 52-week high

Yes well it got up to barely kiss 36,000 last night then sellers have been sending it down, all the way to the middle of the late October consolidation. I’m now near my strangle entry point. I still have a lot of time on the options (Nov 17) and I can go either way now. I’m thinking that if it continues down breaking below the consolidation then it could give back all of the 10/23 rally. Then again, if it reverses upward, it could experience a lot less resistance between 35,000 and 36,000 because a lot of the waiting traders at that level have been cleared out.

Either way is fine with me. Worst case is if we go 2 weeks going nowhere…

The recent volatility (since 11/1) has me thinking bearish, but I might just be using stock market thinking. The thing about Bitcoin is that it is inherently volatile so maybe it is not by itself a bad sign. Of course, for me, this is just an academic exercise because my current strangle makes me completely neutral about which way it goes. I just want it to pick a direction and stick with it! :slight_smile:

Okay, I am now mostly out of this Bitcoin strangle. I was not able to watch the market today due to other appointments, but I was here at the beginning of the day to set a limit order for exit. The thing is that I need to be out this week due to options expiration, so if a profitable exit surfaces I had to take it understanding that I might not get the best exit by just setting a limit price. The entry price for the call side and put side was 1.05 so I set my limit price at 1.19 which would be a decent profit even though it was like 300% more than the current options price. 1.19 was hit, and as it turns out that was the max price today for the option, which means that I was extremely lucky to the penny!

As I said before, my strangle was BITO 11/17 C18 0.42 P16 0.63.

My exit was C18 1.19 which is a 0.14 profit or 13.3%. The put side is next to worthless right now, but if it reverses downward and keeps going down for 2 days, then I might be able to make more money on that side.

Here’s a chart of what happened.

Interesting to follow your trades. The thoughts and explanations are what makes it worthwhile for me…doc

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