I write regularly here about options collars. My emphasis in every such article so far has been what I emphasize in nearly all my investing work: risk management, preserve it first, then grow it as much as you can.
This time around, the collar I’ll show you is, shall we say, a bit on the wild side. Buckle up.
First, I’ll show you the collar setup, then I’ll explain the bull and bear narratives around it that are likely to influence how this one turns out. I’m dealing with Bitcoin (BTCUSD), specifically the Ishares Bitcoin Trust ETF (IBIT), the largest spot Bitcoin exchange-traded fund (ETF) around.
The first thing to notice is the “IV Rank” in the picture below, which is around 37%. That means that IBIT is actually in the lowest 37% of its 12-month volatility range. As I see it, a volatile asset class like this is always a potential collar strategy, since the covered call option part of the collar can more easily pay for whatever put protection I deploy.
The collar is struck at $60 on the call side and $30 on the put side. As I highlighted below, the cost is quite low to go out more than six months. That’s because, in this case, as opposed to most of my collar presentations, I am accepting a lot more downside risk — 25% from current levels.
In exchange for that, I’m getting more than 50% upside, and the options cost is quite low, only about 2.4%. This is about two or three times less than many examples I’ve shown in the past. But this is the wild side!
IBIT’s technical chart is ideal for a collar. Or as I refer to it, a “dog collar.” I use that term to describe a stock or ETF that is way down in price, showing at least faint signs of a temporary bottom, and has at least average volatility.
IBIT currently checks all three of those boxes. It bottomed in this area back in 2024 and stayed there for months. That makes for a strong support level in that $32 to $35 area, from which it is bouncing as I write this on Monday morning.
I could strike the put at $35 or just below, but that protection is more expensive than striking it way down at $30, as shown above. That is cheap “insurance” against a further steep decline in IBIT, but I still limit my loss to 25%. Bitcoin is down 50% since October, to put that in perspective.
