Trade Alert: Crypto Pullback

Taking advantage of Bitcoin's drop to enter a bullish options trade on a Bitcoin-related stock.

Bitcoin’s 4th of July Drop

Overnight, when I typed the first part of this post, Bitcoin was down about 8% over the previous 24 hours. We already have trades open on a couple of names with some Bitcoin exposure, so I thought I’d take advantage of this drop to add another.

This company beat on both top and bottom lines when it released its earnings in May, but since then, its shares are down about 8%. Chartmill gives it an overall Technical Rating of 1 (on a scale of 1-to-10), which is pretty bad, but it gives it a Set-Up Rating of 8, indicating that its prices have consolidated. The stock also has a PEG ratio of less than 1, suggesting its priced attractively relative to its growth rate (Chartmill gives it a Growth Rating of 9).

Our bet here is that it recovers its early May price when it releases its earnings next month. If we’re right, we’ll have another 200% gain.

Details below.

Our Bullish Bitcoin-Related Bet

The stock is Block (SQ 0.00%↑), which offers crypto trading via its Cash App and holds more than half a billion dollars worth of Bitcoin on its balance sheet. The expected move in this stock after its earnings release next month is about $8 in either direction. Our trade is a vertical spread expiring on August 2nd, buying the $69 strike calls and selling the $70 strike calls for a net debit of $0.33. The max gain on 10 contracts is $670, the max loss is $330, and the break even is with SQ trading at $69.33. This trade hasn’t filled yet. This trade filled at a net debit of $0.33 on 7/8/2024.

Exiting This Trade

Assuming this trade fills (today or next week), I’m going to set a GTC order to exit at a net credit of about $0.95, and lower that price, if necessary, as we approach expiration.