How To Trade Bitcoin: Consider This Covered Call Option Trading Idea

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The bitcoin craze appears to be returning to full swing, with prices rising 50% in recent weeks. So how do you redeem it? After all, Bitcoin itself is extremely volatile both on the upside and on the downside, and the other downside is that it doesn’t provide a steady stream of income.

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Fortunately, by using options we can generate income. At the same time, we are exposing ourselves to blockchain technology.

Coinbase (COIN) is one of the more popular crypto stocks, and we could look at options income strategies on this stock.

Another, perhaps less volatile, way would be to trade covered calls on the Amplify Transformational Data Sharing (BLOK) ETF.

This exchange traded fund is still quite volatile but is expected to be less volatile than Bitcoin and some crypto stocks.

Is Coinbase a buy? Here is the IBD perspective

BLOK contains positions in shares of companies engaged in the development and use of blockchain technologies, such as PayPal (PYPL), Square (SQ), Marathon Digital (MARA) and Nvidia (NVDA).

Let’s take a look at how a covered buy trade on BLOK might take shape.

How to Trade Bitcoin: Building the Covered Call

Buying 100 shares of BLOK would cost around $ 5,100.

A call option of 55 expiring in September was trading around $ 1.55 per share on Monday, generating $ 155 in premium per contract.

Writing the call option generates 3.13% income in just under two months, or about 30% annualized.

Selling the call more out of the money also gives the deal upside potential.

If BLOK closes above 55 on the expiration date, the shares will be recalled at 55, leaving the trader a total profit of $ 555 (gain on shares purchased at 51 per share, plus the option premium of 155 $ received). This equates to a yield of 10.9%.

Of course, the risk with how to trade this Bitcoin linked ETF is that it could drop, which could wipe out any gains made by selling the call.

Remember that options are risky and investors can lose 100% of their investment.

This article is for educational purposes only and not a commercial recommendation. Remember to always do your due diligence and consult your financial advisor before making any investment decisions. Gavin McMaster holds a master’s degree in applied finance and investing. He specializes in trading income using options, is very conservative in his style, and believes that patience to wait for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ

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