These days there’s no bigger buzzword for stocks than blockchain. It’s also a market arena synonymous with volatility and ripe with more than a few suspect entrants. With caveats in place, Riot Blockchain Inc (NASDAQ:RIOT ) offers bullish options speculators a better way to play this high-octane game with non-negotiable risk control. Let me explain how to trade RIOT stock.
I’ll make this plain and simple. My opinion is RIOT stock and other small-cap equity plays trying to cash in on the cryptocurrency and blockchain craze most likely will not see the light of day over the long haul.
I can’t guarantee Riot’s path is set in stone. However, the history of companies changing names, not to mention business models, to cash in on the next big thing hasn’t been kind to investors that overstay their welcome. And RIOT stock fits the mold.
Are there any positives to owning RIOT stock? I suppose investors can be happy the new initiative doesn’t sound as hilarious as peer Long Blockchain Corp (NASDAQ:LBCC), formerly known as Long Island Ice Tea Corp.
For unruffled traders that crave volatility, but understand the difference between investing and gambling on a short-term technical reaction, RIOT stock is appealing.
RIOT Stock Daily Price Chart
RIOT stock has pulled back. Others may have another term in mind for the 65% price collapse over the past couple weeks. Personally, I prefer not to be guilty of promoting hype in a company still very likely decoupled from fundamentals or what some might rightfully call reality.
With another caveat in place, RIOT stock is nevertheless offering aggressive traders a decent spot to get long. Aside from the large decline, shares have now filled a significant price gap, while finishing the session in a hammer candlestick reversal pattern. It’s a bullish scenario in the near term.
Also supportive, I like that the 62% retracement level was recently broken while taking out the late December pivot low. The combination likely washed out many bulls and could help free up a quick price burst in RIOT stock to the upside. That said, I still wouldn’t own shares of Riot as the bearish gap risk is still too great in my view.
RIOT Stock Bull Call Spread
For those traders that are willing to make a more speculative wager in RIOT stock, I’d suggest an out-of-the-money bull call spread. Vertical spreads like this are great as they reduce and define risk. This type strategy also offers a nice payoff relative to risk if shares allow the spread to go into or fully in-the-money.
One combination that is favored is a long RIOT Feb $20/$22 call spread. Priced for 45 cents with shares at $18.20, risk is limited to 2.50% of owning RIOT stock outright.
No doubt the smallish and limited risk is a nice insurance policy in the event Wednesday’s technical low fails to hold. At the same time, so is the opportunity to realize a max payout of $1.55 or 345% if just a tiny bit of RIOT stock’s prior feeding frenzy reasserts itself in the short term.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.