Bitcoin has been rallying recently, which could help provide some stimulus for Coinbase.
Coinbase stock is starting to show signs of accumulation with some tight action appearing on the chart recently. Investors interested in taking some bullish exposure can do so with much lower risk through a bull call spread.
Investors create a bull call spread by buying a call and then selling a further out-of-the-money call. Selling the further out-of-the-money call reduces the cost of the trade but also limits the upside.
A July 185-strike call option is trading around $20, and the July 190 call is around $18.10.
Bull Call Spread: A Risk-Defined Strategy
Buying the 185 call and selling the 190 call would create a bull call spread. The trade cost would be $190, or the difference in option prices multiplied by 100. The maximum potential profit would be $310, or the difference in strike prices, multiplied by 100 less the premium paid.
A bull call spread is a risk-defined strategy, so if Coinbase stock closes below 185 on July 18, the most the trade could lose is the roughly $190 premium paid. Potential gains are also capped above 190, so no matter how high Coinbase stock might go, the most the trade could profit is $310.
The break-even price for the trade is equal to the long call strike plus the premium, which in this case would equal 186.90.
In terms of trade management, if the stock dropped below 160, or if the spread value dropped from $190 to $90, I would consider closing early for a loss.
Rankings For Coinbase Stock
According to the IBD Stock Checkup, Coinbase stock ranks No. 24 in its group and has a Composite Rating of 69, an EPS Rating of 82 and a Relative Strength Rating of 20.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
