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Hey everybody, JD here with your Rational Trader Market Analysis daily.
We’re taking a little detour today.
See, the volume of companies reporting earnings is drying up, so there just aren’t many of those Mean Reversion Cash Machine trades we’ve been doing.
That’s fine — we’ve got another tool in the box: the daily arbitrage trading opportunity.
What I Mean by Arbitrage
When I say arbitrage, I don’t mean the textbook definition of risk-free profit. What I’m looking for are gaps between what the market is expecting and what actually happens.
I use three pieces for this:
- Futures expectations (what the market’s pricing in)
- My own seven-factor scoring system
- And real-time price action
When those three line up, you get an exploitable gap.
Today’s Example: Bitcoin
Today the gap showed up in Bitcoin.
The market was only pricing in a 25 basis point move, but Bitcoin actually jumped about 1.25%.
That’s a 100 basis point arbitrage gap — and that’s the kind of mispricing I want to trade.
The Trade Setup
Here’s how I played it, using the BITO ETF:
- Buy the $19.50 put
- Sell the $18.50 put
- Expiration: this Friday
That spread cost about $0.28, and it can pay up to $1.00. That’s more than a 3-to-1 payout if the trade goes our way.
Wrapping It Up
This is why I keep an eye on these arbitrage plays.
Even when earnings trades dry up, there are always mispricings to exploit.
And when you can define your risk and line up the probabilities, you can find some very juicy trades.
That’s it for today. This is JD — take care, good luck, and I’ll be back tomorrow with more.
Talk soon,
JD
The Rational Trader
