With 2023 being a largely bullish year, we’ve mostly followed bullish UOA — and that’s been highly successful. Earlier this year, we captured Nvidia’s monster rally higher, we rode along for a while with Netflix when it was trading at $360, and we even caught the bottom of the banking panic with KRE. However, today we’re watching the market, we’re looking at seasonality, and we’re looking to stay agile.
With August typically being a “breather month,” we’re looking for our spot to take advantage of a potentially overheated stock that’s about to report earnings. That stock, in this case, is Coinbase.
Coinbase is slated to report earnings after the close on August 3rd, and today we caught a massive bearish trade in this preeminent crypto exchange. That trade:
- COINBASE BEARISH PUT SPREAD
- Expiring August 11th (8 days after earnings)
- Strikes: Long $80 put (bought for $1.52), short $60 put (sold for $0.18)
- Total cost: $1.34
- Max value: $20.00, if Coinbase trades at or below $60 by expiration.
- Coinbase’ price at the time of trading: $104.00
The first thing you might notice about this trade is that it is very far out of the money. We’re talking about more than ~20% just to get to our long strike. However, Coinbase is a high beta name. On today’s relatively soft red day, Coinbase fell -7.78% (at the time of writing). Notably, there is plenty of time for this trade to become right. Additionally, with a high beta stock like Coinbase, earnings often offer a big move in either direction.
The next thing you might notice is that this is a put debit spread. We use a lot of debit spreads in this service to lower our risk, lower our cost, and set expectations. However, in this instance, with the short leg trading for just $0.18 (a little more at the time of writing), we don’t believe it’s necessary to use a debit spread here. You can — after all, $60 for coinbase would be a big long shot, however, what I plan to do with this spread is potentially “leg it off” later on, after we’ve gotten some of the initial move closer to $80.
What that means: Simply put, when you purchase a long call or a long put, you can always decide to turn it into a debit spread later. In other words, you can sell the short leg any time, not just when you enter the trade. This allows you to potentially take some money off the table once this trade becomes successful. In other words, I might sell the $60 put against the $80 put, but probably not yet. Instead, I chose to enter this $80 strike August 11th put on its own in order to capture the maximum upside during what I believe may be the beginning of a downside move.
Wrapping up: This trade risked $1.5 million dollars to bet that Coinbase is heading lower into and following its earnings. I’m using the $80 strike put expiring August 11th to tag along on his or her trade — and if it starts really moving, I’ll probably sell the $60 strike put against it to capture some of the premium.
Want more trades like this the moment we see them? Try a month of UOA today.
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