Coinbase is looking stronger than it was last year, but is also reaching overbought conditions.
What I'm thinking in this scenario is an unbalanced iron condor, with a slightly bullish bias.
This can be achieved by using a wider put spread than the call spread.
As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.
First, we take the bull put spread. Using the Aug. 18 expiry, we could sell the 60 put and buy the 50 put. That spread could be sold for around $1.50 late Wednesday.
COIN Stock Trade Offers $185 In Premium
Then the bear call spread can be placed by selling the 115 call and buying the 120 call. This spread could be sold for around $0.35.
Notice that the put spread is 10 points wide and the call spread is only five points wide. This gives the trade a slight bullish bias, but also more risk on the downside.
In total, the iron condor will generate around $1.85, or $185 in premium.
The profit zone ranges between 58.15 and 116.85. This can be calculated by taking the short strikes and adding or subtracting the premium received.
The maximum risk is $815 on the put side and $315 on the call side.
COIN Stock Trade Can Return 22.7%
If we take the premium ($185) divided by the maximum risk ($815), this iron condor trade has the potential to return 22.7%.
A stop loss in this case might be calculated based on 25% of capital at risk. That would be a loss of around $205.
According to the IBD Stock Checkup, COIN stock is ranked No. 14 in its industry group and has a Composite Rating of 65, an EPS Rating of 33 and a Relative Strength Rating of 94.
Coinbase is due to report earnings in early August, so this trade would have earnings risk if held to expiration.
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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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
