How We Bagged a 53.5% Gain Betting Against Bitcoin

By Larry Benedict, editor, Trading With Larry Benedict

When Donald Trump won the election last year, a wave of euphoria swept through the crypto markets.

The president said he wants the U.S. to become the global leader in digital finance.

That’s why his win saw Bitcoin (BTC) rally from under $70,000 to just over $108,000 by mid-December.

After retracing, BTC hit a new all-time high on January 20 at $109,358. That had the bulls out in force calling for BTC to hit the $150,000 mark next.

But just when it looks like it’s on the verge of another leg higher, BTC tends to reverse. And this time was no exception…

After topping out last month, BTC pulled back and recently traded around the $92,000 level.

BTC holders might have watched that down move with despair. But my subscribers were able to snag a 53.5% gain.

To be sure, this was no ordinary trade…

For a start, we didn’t trade BTC itself. Instead, we bought put options on an ETF that gives us exposure to BTC price movements.

So let me explain…

A Bitcoin Proxy

For this trade, we used the T-Rex 2X Long MSTR Daily Target ETF (MSTU). It’s a leveraged ETF that seeks to deliver twice the daily return of MicroStrategy (MSTR).

On paper, MSTR is a data analytics company. But it owns close to 500,000 bitcoins. That makes it the largest corporate holder of BTC.

And the market views MSTR as a proxy for BTC. In short, it’s another way to trade BTC on a regulated exchange.

Since MSTU is leveraged at two times MSTR’s action, that means a 1% move in MSTR should equate to a 2% move in MSTU.

To be clear, leveraged ETFs aren’t designed for “buy and hold” investors. Instead, they’re a way to capture a short-term breakout move. Get it right, and you can generate supersized profits quickly. However, a wrong turn could see the value of your position evaporate just as swiftly.

So let’s check out our trade…

Getting the Right Timing

On February 3, BTC tried to rally off a short-term low. But that move soon faded out.

Buying momentum in the Relative Strength Index (RSI) slipped as well. So we bought an MSTU put option on February 5 to capture an anticipated down move. (Note that a put option should increase in value when the underlying stock falls.)

As the chart below shows, we got our timing right…

T-Rex 2X Long MSTR Daily Target ETF (MSTU)

Source: eSignal

(Click here to expand image)

MSTU continued to drift lower as BTC (and MSTR) continued to slide.

MSTU went through a flat period around the middle of the month. BTC got stuck in a $95,000–96,000 trading range.

Then MSTU’s fall accelerated as BTC broke below $92,000 on Monday.

We closed out our trade by selling our put option for a 53.5% profit.

That was a great return in less than a month.

Of course, trading options is not without risks. If the move you’d hoped for doesn’t pan out, you run the risk of your option expiring worthless.

But if you get it right, you can generate tidy wins even when BTC is falling.

That can be a powerful tool, especially when markets get more volatile. So if you’re interested in learning more about this type of trading – and even getting in on my next recommendation – you can check out the details right here.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict