Week 6, Trade 6: Sell Puts on $ETH
KISS - Keep It Simple Stupid
Week 6, Lesson 6
“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” – Jesse Livermore
We are into Week 6 of the Fifty Two Trades in Fifty Two Weeks. Thank you for reading.
“The 52” deep dives into one trade every week, targeting traders with zero or little trading experience. But I hope that my pro trader friends find this as useful. For details on why I am doing this and who is this for, please read the About section on top, which I will update from time to time.
Most trades that we take will be medium (3-4 weeks) to long term in nature. We might do some swing trading here and there if opportunity presents, but always with proper risk management. After all, our purpose is to make money, not lose sleep over it.
You can track our trades and progress live here at this Hashtalk Link
Over 10 years in banking and now 12+ years dealing with nuances of crypto, I have learned some very hard lessons. I intend to share them transparently as we go. More importantly, please keep the comments and feedback coming, so I know we are on the right track together.
Keep It Simple Stupid - KISS
Before we go any further today, I want you to watch this master class in keeping it simple by Warren Buffett, something I have been advocating in almost every newsletter - high conviction simple trades. You don’t need to know everything and anything about all the things.
Portfolio Update - Open Trades
The market is rangebound. On one side we had good inflation numbers and on the other side we have sell pressure from Jump Trading selling their $ETH. Most assets are staying within a range, waiting next catalyst to break out of this pattern.
While the market bled, July was a strong month for us, with an impressive overall return of 18.25%, outperforming $BTC, $ETH, and $SOL. Thank you very much.
Since our portfolio's inception, we have seen an RoI of 30%, resulting in an annualized return in excess of 250%. Let’s maintain this momentum and review our current trades:
Trade-3: Spot $MOTHER
$MOTHER has been consolidating along with other $SOL alts. Our logic wrt $MOTHER is intact and we are not very much worried, either about $SOL or its $MOTHER (lol). However, since we had already exited 25% of our position, our loss on this trade is contained at around $1300. Given that the market appears to be range-bound for the next week and the current price is still 35% above our stop loss, we are closely monitoring this position. We’re setting a profit target of $0.09 for the remaining portion of our position.
Trade 4: Spot $WIF
The price of $WIF has stayed relatively steady compared to last week and is holding up well at the previous support level of $1.50. Given our expectation that the market will stay range-bound, we are lowering the target price (TP1) for 50% of our position to $2 to secure some profit and free up capital for future trades. We will maintain the original TP1 of $2.50 for the remaining 50% of our position.
Trade 4: Spot $BTC, $SOL & $WIF
As noted in our Telegram update last Monday, we identified excellent buying opportunities and took positions in $BTC, $SOL, and $WIF, which performed very well. Anticipating a range-bound market, we set sell triggers in case of a market pullback. When the market experienced a minor pullback, our sell triggers were activated: we closed 50% of our BTC position at $58,500 on Monday, realizing an 18% profit in just 7 days.
For $SOL, our sell trigger of $150 was reached over the weekend, leading us to close 50% of our position with a 25% profit in 6 days.
Regarding $WIF, our sell trigger is set at $1.50 and we ended up closing 50% of our position at $1.50 at a profit of 25% in 10 days. The remaining 50% of our position is still open.
Our $BTC position remains in the money with about 11.5% return in last 7 days.
Though if we see any more upward movement in the market, we would increase our stop loss on all our open positions. To keep a track of all the updates join our Telegram group to get the alpha as they happen.
If you have any questions, ideas, or feedback, please feel free to DM me on Substack or Twitter, Let's continue to navigate the market together!
Quick Macro & Crypto TL;DR
THE GOOD
BoJ halts rate hikes, sparking a $4.0bn inflow into Japanese stocks—the third largest YTD.
Fed rate cuts in September are now almost certain.
The hotly anticipated PPI prints were as expected
THE BAD
Polymarkets shows Harris taking the lead over Trump for the first time.
THE UGLY
Tensions flare as Hezbollah and Israel engage in conflict following the death of Hamas’ chief in Iran.
For more regular insights into macro and crypto trends, subscribe to our weekly newsletter: 5-Minute Macro and Crypto Weekly.
Week 6, Trade 6: Sell Puts on $ETH
This week we are going for a different structure than the regular buy and sells via Options. The reason for that is very simple - market are shaky, rangebound and there is no highly conviction trade that we can take this week.
$ETH on the other hand, saw the biggest dump with Yen carry trade mayhem and is now in strong position to strike back. We're selling put option contracts for $ETH with a strike price of $2,300 and an expiry date of August 30th (about 2 weeks duration).
Current $ETH price is at 2615. The premium we earn for selling put options is 0.0185 $ETH or $48.5 for 2 weeks exposure. That is a monthly return of 3.7% (1.85%x 2) or annualised return of around 44.5%. We are taking an exposure for a total of 5 ETH, that is a max capital lock up of US$ 13,075. We earn a total premium of $242.5.
Our strategy is to hold these options until expiry. If $ETH falls below $2,300, we are happy to buy back 5 $ETH at $2300 for a total of $13,075, because the rebound back to $2700 or $3000 should be very quick. We can also close the position in next few days in case we see there is a decent profit locking opportunity.
Why $ETH Trade?
ETH Price Dynamics: ETH has recently experienced a significant decline, largely due to Jump Trading selling their $ETH. But since the sell-off by Jump there as been a decrease in the sell pressure and $ETH seems to be consolidating above the $2,500.
SOL/ETH Ratio: The SOL/ETH ratio surged to an all-time high of 0.62 during this decline, but $ETH has been recovering since and the ratio has fallen below it’s previous resistance of 0.058 and most likely consolidate under that in the current accumulation. With doubts floating around end of memecoin mania, $SOL is taking a beating vs $ETH
Lowest Inflation: The current $ETH gas fees have dropped to 3.48 Gwei, making it slightly inflationary at the moment. However, if we reach a gas fee of 20 Gwei, the system becomes deflationary and scalable simultaneously. Moreover, despite the low gas fees, $ETH still remains significantly less inflationary compared to $SOL and $BTC.
ETH Memes Revival: ETH related meme coins are experiencing a notable resurgence, reflected in their rapidly growing market capitalization. For Ethereum, memecoins such as Neiro, Mog have driven significant increases in value, showcasing a vibrant revival in the meme coin sector.
Rising L2 Demand: Ethereum Layer 2 transactions recently surged to a record high of 12.42 million. The Base network contributed over 3.6 million transactions, consistently outperforming Arbitrum to become the leading Ethereum L2 network in transaction volume since early July. As more Layer 2 solutions are adopted, the demand for $ETH increases, taking more $ETH out of circulation for real-world use cases.
Defined Roadmap: Ethereum core developers concentrate on the roadmap for the base layer, while teams like Arbitrum, Optimism, Base, and various other L2s can focus on scaling and experiment with different nuances.
Corporate Adoption: The value of top global companies beginning to build on Ethereum is definitely not yet reflected in its price.
ETH ETF Trends: No significant outflows from ETH ETFs have been observed. Increased demand from these ETFs could provide a bullish catalyst for ETH compared to SOL and BTC
Conclusion
Given the current market volatility and the lack of clear opportunities elsewhere, selling this put option allows us to earn premiums against selling puts, translating to an impressive annual return of around 45%. %. Here's the breakdown:
Premium: $48.5 per ETH
Current ETH Price: $2,615
Monthly Return on this trade: (48.5/2,615)*2= 3.7%
Annualised Return: 3.7%*12= 44.5%
If $ETH falls below our strike price, we're happy to acquire more ETH at $2,300, but once the rate cuts are announced in Sept, we expect a swift rise of the price back to $3,000 in a matter of days.
Moreover, after analyzing our portfolio and watchlist, we were not able to find any high-conviction trades beyond our current positions. We'll be monitoring the market closely. If BTC drops to $50K, we might increase our holdings and keep an eye on promising altcoins like $BNB, $JUP and meme coins like $POPCAT, $NEIRO, $MOG.
Stay tuned for more updates and insights!
You can track all our trades here.
Now go grab a coffee and please DM for any questions. Keep in mind, this is NFA and DYOR.
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Depends what you want to trade. For small trade experience and if you are new - coinbase and Binance are just fine.
If you are a degen - perhaps use any good DEX.
hello sir thanks for the posts, what do you use for trading crypto?