Eric, a former equity-options market maker, explains why he uses options instead of spot or futures to bet against Bitcoin. He watches strike levels like 11,200 and 11,500, and prefers options because they let him specify exactly where he wants exposure and limit his downside.
11,500 strike calls.
~11,200.
~10,200-ish areas.
Eric, you consider yourself first and foremost an option trader. Can you tell us a little bit what it means?
Yeah, absolutely. So where I come from is actually as an, as a market maker in equity options, used to chart on the floor of New York stock change arca. And that's kind of how I got my start. So I'm most familiar with options. And option trading is different from. Well, first we should define them all. Right. The first one is what everyone knows, just regular spot trading. That's when you go on to insert random exchange here, like Coinbase perhaps. And, you know, if you're just buying and selling there, that's what we call spot trading. Then you have futures, which are derivative products, which essentially are kind of like spot, but an agreement at a later date with an expiration for a price right now usually trading at some sort of premium or discount. And then options is where we take that and pervert it just one more step further and add on not only an expiration date, but we also add on different strike prices at which these derivative products, you know, go into. Go into the money, become actually, well, active. Now, the problem or the. What gets a little bit confusing about options is that you have both calls and puts. You can both be a buyer or seller of calls and puts. So calls, essentially, if you're a buyer, you're looking for price to go up. If you're buying puts, you're. You're. You're doing the opposite. You're looking for price to go down. Like I said, you can sell them both as well. So there's also two different arbitrage plays with that. For myself, I would always be looking to lock in some arbitrage. So let's say someone comes in, wants to buy a call for me, I'll go, you know, and if my model says good do, I'll do it. And then I'll pull on the other side by perhaps buying or sorry, buying a. Sorry, selling a put and then buying some. Or, sorry, selling some, selling some stock underlying. And then you can kind of find these little arbitrage plays like that. So when I say that I'm an options trader, first, I'm typically thinking in that sort of mode. I want to be locking in all sorts of sides and making sure that I'm keeping relatively delta neutral. So I'm never really looking for, like the big home run play, even though on my YouTube channel I will show a few positions like that here and there. But those are very few and far between because they really just don't happen. All that Often, more often than not, things are ranging and caught in like a, you know, in a nice little zone, kind of like we are right now. And that's the beauty of options. Because I can construct a zone of profit essentially where as long as we stay within that zone, I can make money off that. And if we go outside of that zone then I start to lose money. But, and because options are so magical in a way, there are plenty of ways to cover yourself if that happens.
In one of your latest videos you said that this is not an appropriate time to go bearish, despite the fact that during the weekend we experienced some significant losses. But you said that in case you want to short on bitcoin, you better do it with options. So why do you think options are the best tool to go short on bitcoin in the current situation?
The reason why I'd rather do with options is because anytime I'm trading against the overall macro trend, I don't want to put that position on spot. So I really don't want to be short spot in an overall upwards market. Just like last year, I didn't want to be long spot while we were in a downwards market. So if I am going to have any sort of counter trend exposure, I'd rather do with options. Because why one, it's easier to cover. I can specify that strike and then cover in advance. It's all well out, you know, well played in accordance to the levels that we were looking at. Right. And over there. So, you know, I can pick, you know, say like the 10,200 ish areas where I start to get bearish once again. If we actually break down, I can say, okay, well then I'll, you know, I'll sell some, you know, if, you know, if I want to have some downside exposure and we break that, I'll sell some, I'll sell some 10,500 strike calls or something like that, or maybe I'll pick the next resistance. Like 11,000 or 11,500 is what I have right now, you know, of which we were just looking at. So 11,200 is kind of where I see the short term and the medium term change. So that's why I shorted the 11,500 strike calls because I know that if we get back above 11 2, I can just cover those, you know, still, still make money of them, still take profit and I can actually keep a spot underlying position as well, long without ever going short. So that's the beauty of it is I don't actually have to risk that having that counter trend position, which for me typically doesn't work out too well. Of course, everyone's got their own secret sauce. I'm not saying anything too crazy here, but that's just my style. What's worked best for me, I've had very little success trading against the overall macro trend.
Okay. And you also said that the one we experienced on the weekend, it can be considered like a bearish trap. A bear trap? What do you mean by bear trap?
Yeah, so bear traps. Essentially we had some quote unquote bearish news come out right in the United States. I think Trump put out a tweet saying he basically doesn't like bitcoin. It seemed like more of a political thing to me between him and Facebook because he and Zuckerberger don't like each other. So those sorts of news articles in the market are classic. When I was in traditional markets, you know, anytime you'd have a news article like that, it's usually a counter trade type idea. People, retailers will kind of treat it as real, they'll sell in and then what can happen, and what I think is probably likely happening right now, as long as we don't take out that next level that we spoke about 10, two, I would say that, that, you know, that sort of news, that sort of price, price activity is promoted by the people who actually do move the markets. And what they know is that, hey, if we create a little bit of emotion, if we get people a little bit, you know, on edge and they start reading the news, say, oh, Trump doesn't like bitcoin, he's going to ban bitcoin, whatever that means, you know, it means nothing. And so I better sell now. Well, you can, you know, they can drive it down, make you think that that's actually going to happen and then, you know, flip it around. And now you got a lot of people chasing who are very emotional and who can add fuel onto like an already burning fire. If they do want to. If they do want to throw on some upwards momentum, Cointelegraph like Subscribe and HODL code Sam.
