Unusual Options Volume for Bit Mining (BTCM) Both Compels and Concerns

For anyone following the cryptocurrency market, the recent dramatic surge in both digital assets and blockchain-related enterprises such as Bit Mining (BTCM) should come as little surprise. When outside circumstances sour on cryptos, they drop like a bad habit. But when they encounter encouraging data, they can veritably skyrocket. Still, even with BTCM stock lighting up the markets, current prospective investors should be cautious.

Just from a pure numbers’ standpoint, it might be wise to approach pensively simply out of the fear of soon holding the bag. For instance, just for the Jan. 17 session, BTCM stock screamed to a profit of 42.48%. In the trailing five sessions, Bit Mining shares gained nearly 116%. And for the young year so far, BTCM appears poised to triple in value.

Very few publicly traded companies come anywhere close to such performance figures. It’s wonderful if you had the foresight of speculating on BTCM stock ahead of the wave. However, as other speculative ideas – such as the once-hot Mullen Automotive (MULN) – confirmed, banking on risky themes such as short-squeeze attempts can eventually lead to failure.

Plus, anyone that’s ever touched the virtual currency space understands this one point: the crypto gods giveth and taketh away. If you hold onto a position for longer than you should, the consequences can be downright brutal.

That said, Barchart contributor Rich Asplund brought up an excellent point. With December’s consumer price report coming in right on expectations, the Federal Reserve may potentially slow its pace of interest rate hikes. Should this framework materialize, the economy could eventually get back on the road to normalization. In turn, this may fuel a recovery in cryptos, potentially boding well for BTCM stock.

It’s an attractive narrative to be sure, thereby sparking tremendous interest in the derivatives market. Ultimately, though, prospective investors must consider the longer-term implications.

BTCM Rockets Up the Chart for Unusual Stock Options Volume

Following the close of the Jan. 17 session, BTCM stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This stat shows the difference between the current volume and the average volume over the past month. Typically, traders utilize this data to determine which stocks may be due for big moves ahead.

Specifically, BTCM’s volume level reached 11,272 contracts against an open interest reading of 24,543. Call volume hit 9,965 contracts versus put volume of 1,307. Further, the delta between the trailing-month average total volume versus the prior session volume came out to 1,533.62%. The implied volatility (IV) rank hit 17.13%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.

To summarize, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.

The IV low for BTCM stock was 39.28% on March 16, 2022. Several months later on Dec. 12, 2022, BTCM hit its IV high of 1,004.13% (no, that’s not a typo). Prospective investors should note that per Barchart.com’s technical analysis gauge, BTCM ranks as an average 24% sell.

Although the current technical strength level of BTCM stock is down near the absolute minimum possible, the directional trend is moving slowly toward the optimistic realm. This isn’t particularly surprising given the recent burst of sentiment contrasting with the stock’s long-term fallout.

Presently, analyst sentiment can only be described as pensive because only one expert covers BTCM stock with a “hold” rating. Up until a month ago, no one covered the underlying company.

Although “hold” in normal language means neither buy nor sell, I suspect the analyst is simply being diplomatic. And that’s because the 60-month beta for BTCM stock ranks at a worryingly lofty 2.43, implying volatility far greater than the benchmark equities index.

Be Careful of the Emotions of ‘FOMO’

At this juncture, what may be the enemy of prospective investors is the emotions of FOMO or the fear of missing out. Essentially, folks that were sitting on the sidelines are now looking at the enormous rally in BTCM stock and want to get in before it’s too late. While I’m not about to advise people one way or another, some perspective is in order.

At the beginning of 2022, the total market capitalization of all cryptos stood at around $2.2 trillion. At time of writing, the valuation is still below $1 trillion -- $993 billion to be more exact. Therefore, if cryptos really were to bounce higher, you’re going to have time to decipher the best move forward. The sector has much room to make up before gaining the full confidence of mainstream investors.

More importantly, this wouldn’t be the first time that the crypto market offered a head fake to anxious bulls, only to disappoint them down the road. For instance, after digital assets collapsed following a then-peak in late 2017/early 2018, the market printed two head fakes in 2018: one in February and the other in April. However, they both failed.

Again, I’m not here to say that the crypto market will definitely collapse. Rather, investors just need to keep their wits about them. Bullish phases in the blockchain ecosystem usually need to be flushed out of all toxicities (i.e. weak hands) before they can sustainably rise again.

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