It's not something Vanguard would do, but I'm wondering if there's a good way to trade on Bitcoin's volatility?
Matt Levine has written about how buying convertible bonds from Microstrategy is sort of doing this [1] but it seems complicated to do.
> This is the more practical meaning of hedging your stock-price risk. It means that every day the stock moves around and you rebalance your hedge. When the stock goes up, you sell some stock at high prices. When the stock goes down, you buy some stock at low prices. Hedging the convertible means buying stock low and selling it high.
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> a convertible bond is a bet on volatility: The more the company’s stock bounces around, the more money convertible arbitrageurs can make.
Yes, you could trade options on Bitcoin futures, or options on Bitcoin ETFs. You could buy calls and puts, which would make you "positively exposed" to volatility - i.e. if people's expectation of volatility goes up, the price should go up. By "delta" hedging them every so often you could "realize" some of that volatility - you would be buying when the price goes down, selling when the price goes up.
Of course, this is all baked into the option price itself, so its not "free money" - its a bet.
Maybe, but I’d stay very far away from bitcoin options or any funds that deal in them. They are likely paying a lot in fees and taking hidden risks that will be passed on to shareholders.
> I'm wondering if there's a good way to trade on Bitcoin's volatility?
It is with options on MicroStrategy (MSTR). I think one strategy is holding MSTR and selling calls (i.e. covered calls). There are probably other strategies that don't require holding MSTR shares, like selling a call and buying a put, but I may be messing that up.
Check out the youtube channel called "Quant Bros" (cringe name, I know), and the /r/MSTR subreddit.
You can buy options. Though one thing to be aware of is counterparty risk. If bitcoin were ever to go to its true value (ie ~0), then you might find that your put options have also become valueless, because the providers of such options are, by and large, horribly exposed in such a scenario.
It is also likely to be very _expensive_, and the market can of course stay irrational longer than you can remain solvent.
Matt Levine has written about how buying convertible bonds from Microstrategy is sort of doing this [1] but it seems complicated to do.
> This is the more practical meaning of hedging your stock-price risk. It means that every day the stock moves around and you rebalance your hedge. When the stock goes up, you sell some stock at high prices. When the stock goes down, you buy some stock at low prices. Hedging the convertible means buying stock low and selling it high.
...
> a convertible bond is a bet on volatility: The more the company’s stock bounces around, the more money convertible arbitrageurs can make.
[1] https://archive.is/S9kOi