Trading Strategy: Target the 12K/14K range, Part Deux

Back in early august, we published a similar idea (in a low premium strategy to mitigate risk) but the market failed, despite a break to 12400, to stay above 12,000 and reverted back to the 10,000 level. This level and the 10,500 acted then as good resistance. With the help of a bullish market in equity (especially in the tech sector), it did not take long to regain the 11,000 level.

In the meantime, even if the DeFi stole momentarily the thunder from Bitcoin, we had recently a series of very positive news around our favourite cryptocurrency.
In mid-September, MicroStrategy announced that they raised their BTC position to $425m, making it the publicly listed company (excluding funds) with the largest crypto holding, representing close to 30% of their market cap.
A week ago, Square announced they have invested 1% of their cash in BTC, i.e. $50m.
These sums can been seen as relatively small compared to the BTC total market cap but this support from the corporate world brings credibility to the currency. “A strong vote of confidence” as JP. Morgan analysts write in their last strategy report.
Now that they have opened the path we can expect more companies to follow. We might even only need one large tech company to make a move and see BTC prices make new YTD highs. Apple, with $200bn cash at their disposal, an allocation of just 0.1% would already represent $200m worth of BTC.

A side effect of this situation, is that by companies locking down BTC holdings, the free float is getting reduced, potentially increasing volatility. Investors should keep that in mind considering it could also exacerbate down moves.

Now, looking at the graph we see BTC price getting slowly squeezed between a support and the 12,000 resistance. We predict an exit of that range should happen at the latest at the end of March. But as it is also likely to happen before the end of the year, we are keen to put that bet on today.

Also, considering that the coming weeks are gonna be news heavy (US elections, stimulus negotiations) BTC prices could also exit on the way down. For that reason, we would favour a strategy light on the premium.

In that context, we like the 26Mar21 12k/14k call ratio

For a flat cost, a 1/1.5x ratio offers a max value of $2000 if we close at 14,000 at expiry. It expires in 162 days. At expiry , the break even point on the upside is at 18k, 58% away from current spot, giving enough head room in case of a massive rally.

As a last remark, one should be aware that his strategy is short vega, and hence present a a risk of mark to market losses in case of a sharp rise in volatility.

Sources :
Tradingview.com
Deribit.com
Coin98 Analytics

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The information and opinions contained in this research report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to its’ accuracy or completeness. Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor. Neither Covario nor its affiliates accept liability whatsoever for any investment loss arising from any use of this research report or its’ contents.

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