As I have mentioned in some previous posts I have been looking at reducing how much money I have tied up in Bitcoin. However, I still want to keep similar price exposure for now. First I sold all my Bitcoin for BITO which has very similar price movement. It does have the downside of an expense ratio and futures drag. However, it should be helpful in keeping price exposure temporarily.
The main benefit of BITO is that it is marginable. So I can easily withdraw cash from my broker to fund IRAs, SEPs, HSAs, etc. Also BITO does have option chains. I have been looking at the 6/20/2025 expirations since they are far out and would benefit from lower tax rates if I held to expiration and the price moved in my favor. When looking at the option chains I did notice that some of the option ask prices didn’t make much sense. So I took the screenshot below.
The ask price for the $14 strike is less than the $15, $16, and $17. Now for a real good arbitrage opportunity I would need the bid and ask prices to be out of whack enough to make a guaranteed profit. For example, if the $15 bid was more than the $14 ask. This is not the case. So I didn’t see any great arbitrage opportunity.
However, my goal is to free up capital and with the ask as low as it was on the $14 strike this seemed like a decent strike to pick. Dealing with options this illiquid can make you lose some market value pretty quickly. I couldn’t get the order to go through without meeting the $2.60 ask, and immediately after the Robinhood software then marks the value down to the mid price of $2.16. If I wasn’t planning to hold this option likely to expiration this could be a problem but for now I will just accept that on my return today it shows a near immediate $572.00 loss due to the 13 contracts being bought at $2.60 and valued at $2.16.
So far it still seems like a good deal for me. Anyway I have now liquidated all my Bitcoin and BITO and am holding only BITO options. I have about $7,505 tied up in these options instead of the roughly $28,000 I had tied up in Bitcoin. Now this gives me funds to invest in other ways that are hopefully uncorrelated. Should Bitcoin drop perhaps I can buy more and if it rises perhaps I won’t miss out too much.
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