Here’s how I (Erwin) made 6 figures stock hacking Bitcoin without buying any actual crypto or crypto related stocks. You don’t have to invest in Bitcoin to profit from it.
Bitcoin is volatile. Companies in the stock market that mine, hold, or develop for the bitcoin network are volatile as well. You can buy their stock outright and weather the storm…
Or you can profit from their volatility.
If you aren’t sure what I mean by “volatile,” take a look at this chart:
The orange line is Bitcoin’s performance since 2020. The blue line is Walmart’s performance.
The orange line is a perfect illustration of a highly volatile asset.
Again, you could just buy Bitcoin and ride the wave, or you could profit off of those wild swings without ever owning crypto or stocks.
How? Let’s dive in…
How to invest in Bitcoin like professional traders and stock hackers
What stock hackers and professional investors do is sell insurance on the stock they want.
Let’s use life insurance to explain a little more.
If you are an insurance company, you want to measure how much risk you’re taking on each person. For instance, you’re taking less risk providing life insurance to an accountant than to a rock star.
Rock star’s live more “volatile” lives than accounts, generally. So the rock star pays higher premiums than the accountant.
Now let’s use that logic in the stock market.
A good example of a relatively “safe” stock would be Walmart. They’re the accountant in this example. They’ve been around for ages, consistently increase their dividend, and they’ll probably out last you and me.
Walmart is a relatively safe bet. So “insurance” on Walmart stock isn’t as pricey.
Bitcoin, on the other hand, is the rock star in our example.
Because you can’t trade Bitcoin in the stock market, we’ll use RIOT Blockchain as a proxy.
RIOT mines Bitcoin (BTC). They’re a new company and their balance sheet is solely dependent on the price of BTC. There’s no telling how much their stock will be worth in 3 years time or if they’ll even still be operating.
RIOT is a high risk stock. “Insurance” premiums on RIOT are much higher.
Why would I hold a volatile asset when I can earn higher premiums?
What I want to do as a stock hacker is to be the insurer, to be the one collecting the premiums.
How to collect premiums on stocks
So how do you measure exactly how risky a stock is?
Implied volatility (IV).
It’s the market forecast of price movement. The higher a stock’s implied volatility, the riskier it is considered to be.
For example, at the time of writing, Walmart’s IV was 21.5%. RIOT on the other hand had an IV of 151.8%. So you get paid more for insuring RIOT.
Let’s run through a specific scenario. While I’m writing this, the price of RIOT is $20.30. Let’s say I’m willing to buy RIOT at $14.
Instead of placing an order for $14 and waiting for the stock price to drop, I could insure the stock at $14 for the next 36 days.
This is called selling a “put option contract,” or just selling a “put” for short.
I’m promising to buy 100 shares of RIOT for $14 from someone. That means the buyer of the put won’t lose more than $14 per share, it’s insured.
Since I’m selling that insurance, I collect a premium. In this case, the premium is $0.60 per share. Now, every option contract is for 100 shares.
$0.60 x 100 shares = $60 total premium paid up front.
That’s cash in my account right away.
If the stock drops past $14 by the end of the contract, 36 days from now, I buy the shares at $14 per share. But I also keep the premium.
If the stock stays above $14, the contract expires worthless. I don’t have to buy any shares, but I keep the premium.
Then I can do it again, if I want.
NOTE: This strategy is part of what we call “Stock Hacking.” It can be a solid side hustle if you know what you’re doing. Click here to download a FREE case study comparing stock hacking to other popular side hustles.
So how did I use this to earn 6 figures in only a few weeks?
The blue line is RIOT’s stock. I sold a put on RIOT early in 2021. I collected premiums right away.
RIOT went from about $25 per share, up to $70, then started to fall back down. I decided to close my put contracts while the price was about $55. I kept the premium and didn’t have to buy any stock or crypto.
Now this is all highly risky. You’ve seen how much Bitcoin and RIOT fluctuate. You should have the full cash amount ready in your account just in case you need to purchase the shares. That’s why you only insure stocks at prices you would like to own them at.
You can sell puts on companies like Walmart too. You don’t get paid as much, but there can be a lot less risk involved.
What does this all mean for me?
If you want to profit from volatile companies, but you don’t want to own the stock at current prices, selling puts is one strategy you can use.
Or maybe you do want to own the stock. By selling puts, you actually get paid to buy stock. You could build a whole stock portfolio by selling puts (just not in registered accounts like TFSA and RRSP).
Now the questions are what prices and dates do you pick to insure stocks at.
Those are topics for another time.
There’s so much to learn about stock options. The examples above are only a couple ways for beginners to start trading options.
For now, keep learning. Subscribe to our e-newsletter, “The Stock Hacker Report” if you want to get weekly stock option education emailed directly to you. If you sign up now, you also get our FREE case study called “The Ultimate Side Hustle for Canadians.”
Either way, we’ll talk to you later!
Erwin and Cherry Szeto
P.S. If you’re interested in finding a new side hustle, that case study, “The Ultimate Side Hustle for Canadians” examines the four most popular side hustles for passive income in Canada. You can download this case study for FREE right here if you want to investigate more.