Last week I was pretty bearish about Bitcoin. Everything speculative has been getting the kibosh, and the market has been in freefall with the occasional bounce. In a bear market, I like to short rallies expecting the downtrend to continue. Instead of shorting Bitcoin itself, I prefer to structure my Bearish trade thesis by taking a short position in Microstrategy (MSTR) a large buyer of Bitcoin.
Moreover, I structure my short position in this case by buying puts! Here’s what happened after I took the trade LIVE in Master’s Club last week on Monday the 27th:
And the put options were up 50% in less than a week!
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Microstrategy (MSTR) is a large buyer of Bitcoin. MicroStrategy held approximately a total of 129,218 bitcoins as of April 5. It was valued at about $6 billion at a price of about $46,742. Since then, that value is down over $3 billion. They made a purchase of at least 4,167 BTC for around $190.5 million between February 15 and April 5. They are since down more than 50% on that particular purchase also. I think Bitcoin has further to fall, and as a large holder of Bitcoin I was bearish MSTR.
I got short on Monday last week Live in Master’s club, and here is my reasoning:
Sentiment
Overall the markets are bearish, especially on speculative growth stocks and assets. In my mind, it doesn’t get much more speculative than Bitcoin.
Technicals
MSTR had a nice bounce off the $150 level and filled the gap at $200. Technically, often, the goal of traders is to fill a gap, and once that is achieved, the price can once again begin to move lower. Given that MSTR was still in a downtrend on the bigger picture, this presented me with a good opportunity to short into this bounce. As a trader, it is my job to get long strong stocks and short weak stocks. But price matters, so I took this bounce as an opportunity to get short. I did this by buying puts!
The Trade
I bought the $200 puts expiring July 15 for $27. That gave my idea a few weeks to work. As of Friday, these puts were trading at $42.45, up over 50% from my entry in under a week. While “investors” and bag holders are getting clobbered, nimble traders are able to take great setups in this market.
The puts were up over 50%, and here’s how the underlying MSTR stock traded after my entry:
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