After struggling for traction since roughly mid-July, Riot Platforms (RIOT) and other blockchain miners popped up sharply on Monday. Unsurprisingly, the catalyst stemmed from the underlying cryptocurrency market, which appeared to blossom under the seasonal trend known as “Uptober.” For whatever reason, cryptos tend to perform well during the tenth month of the year, enlivening RIOT stock and its ilk.
Even better, the pattern has been persistent, enabling at least short-term traders to scalp some quick profits. For this year’s edition, several other entities, including Hut 8 Mining (HUT) and Marathon Digital (MARA), printed gargantuan single-day returns. Naturally, proponents of decentralized assets are hoping that the beleaguered virtual currency market is turning a corner. If so, that could translate to even bigger rewards for RIOT stock.
Still, it’s not an endeavor to wander into lightly. For one thing, the Barchart Technical Opinion indicator rates RIOT stock a 40% sell. That’s not exactly a confidence booster. Also, the Uptober phenomenon arguably hasn’t demonstrated a sustained framework. Perhaps most notably, cryptos soared throughout October 2021. But we all know how that story eventually ended.
Nevertheless, it would be imprudent to completely rule out the possibility of upside for RIOT stock. Remarkably, the blockchain miner commands a strong buy consensus view among Wall Street analysts. This assessment breaks down as six strong buys, one moderate buy and only one hold.
For a publicly traded security that lost 51% of value since July 13, such bullishness represents an impressive feat. Still, it’s probably best to check out the rumblings in the options market before you make your final decision.
An Intriguing Battle Materializes for Control of RIOT Stock
Usually in my columns for unusual activity in the derivatives market, I refer to Barchart’s unusual stock options volume screener. However, given the Uptober interest, I’m going to call an audible and focus on RIOT stock, one of the biggest players in the blockchain mining industry. Let’s give people what they want to hear.
Assessing the heightened transactions for RIOT, two options stood out: the Oct 13 ’23 10.50 Call and the Oct 27 ’23 9.00 Put. Based on options flow data from Fintel – which exclusively targets big block trades likely made by institutions – for the former transaction, a major trader (or traders) wrote 3,940 contracts of the $10.50 call. Regarding the latter, a trader(s) wrote 2,105 contracts of the $9 put.
To get everyone on the same page, when you buy a call option, you have the right (but not the obligation) to exercise the option, which involves acquiring 100 shares of the underlying security at the listed strike price. However, if you write (sell) a call option, you have the obligation to sell those 100 shares at the strike, assuming the exercising of the contract.
Conversely, when you buy a put option, you have the right (but not the obligation) to sell 100 shares of the underlying security at the strike price. On the other hand, put writers have the obligation to buy those 100 shares at the strike if the countervailing party exercises the contract.
Therefore, when significant entities write options, it’s possible to interpret the action as the opposite goal of what option buyers are aiming for. In this case, the call writer may be bearish and the put writer may be bullish.
Both Sides Take Huge Risks
Intriguingly, both sides in the options battle in RIOT stock are absorbing huge risks. For the call writer, it’s quite possible that RIOT and other mining companies can blossom under a possible crypto resurgence. About the only saving grace here is that the call will expire soon.
However, the put writer is likewise taking a serious risk. On Monday, RIOT stock closed at $9.88. With the put’s strike at $9, that’s a little close for comfort for arguably most retail traders. All it takes is some bad news for this transaction to go sour.
Still, the question is, which side is bearing the most risk? In my opinion, I think it’s the put writer.
For one thing, you’ll notice that the $10.50 strike price also coincides with a horizontal support line that is now acting as upside resistance. And before you send me an email, I realize that the red line is at $10.52. However, the system wouldn’t let me get to $10.50 exactly.
Generally speaking, support lines that later act as resistance present huge concerns for the viability of the affected security. Basically, the dynamic suggests that sentiment or interest is gradually fading.
Second, the broader fundamentals support the bearish angle. With inflation being stubbornly high and job losses mounting, fewer retail investors have discretionary funds to speculate on cryptos or crypto-related enterprises. Therefore, I would be extremely cautious about venturing into RIOT stock or virtual currencies simply based on the Uptober trend.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
