The cryptocurrency market is alive and well, with Bitcoin displaying rising momentum. This positive trend is sending ripples through the market, particularly for companies like Coinbase Global (COIN), a leading cryptocurrency exchange. Coinbase not only offers investors exposure to Bitcoin but also acts as a proxy for the overall crypto market.
Adding fuel to the fire are political activities that could potentially benefit Bitcoin's long-term prospects. Furthermore, a closer look at Coinbase's technical setup reveals some intriguing signals.
With these factors converging, a tactical options trade on Coinbase may be an attractive proposition for investors seeking to capitalize on these bullish forces. Let's dive deeper and explore why a well-structured options play on COIN might be the perfect way to navigate the current cryptocurrency landscape.
Bitcoin Displays Growing Momentum
Bitcoin has been a fantastic trading vehicle so far this year as the nascent digital asset has risen over 50% YTD. In just the last three days, the price of Bitcoin has rallied more than 13%.
As of today, Bitcoin sits within a broad range that it has been carving out since March. This recent rally has drawn some investors back into the cryptocurrency, but if it can breakout above the $72,000 level and make new all-time highs, there is no telling just how high it can rally. $100,000 per coin will be in spitting distance.
Image Source: TradingView
Political Machinations Favor Bitcoin
One interesting development for Bitcoin in the last week has been Presidential nominee Trump’s decision for Vice President. Donald Trump has picked Ohio Senator J.D. Vance as his running mate, who is an outspoken Bitcoin advocate.
Although the fall presidential election winner is of course unknown, both Trump and Vance being pro-crypto is a welcome development for Bitcoin.
Coinbase Global Stock Offers Bitcoin Proxy
Although we keep talking about Bitcoin, Coinbase is a great way to get exposure. Coinbase has actually outperformed Bitcoin, and most importantly for this writeup, offers the ability to trade options.
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Coinbase Technical Setup
Coinbase has been a big winner this year, steadily forming bull flags and breaking higher. Today, we can see that the price of COIN stock is bumping against the upper level of resistance. If it can clear the $247 level, I would bet that the stock rallies to new YTD highs.
Image Source: TradingView
Strike Selection: Targeting Asymmetric Potential
After trading options for the last ten years, I have found an extremely simple and effective method for structuring these trades.
While many traders like using spreads and advanced multi-leg strategies, I am a fan of simply buying 30 delta calls (puts). This way investors can risk the trade to $0, and the only trade management necessary is selling the option to take profit. If your trade is wrong, you can just let the option expire worthless.
I prefer risking the full premium in the option because it gives me very explicit risk management.
Additionally, the 30-delta option gives a perfect mix of lower priced options, medium distance to being in-the-money, and high asymmetry. Lower delta and the strikes are too far from the current price, and higher delta lowers the asymmetry.
For this trade, we will go with the August 2nd $272.50 call with a 0.3 delta.
Image Source: Barchart
COIN August 2 Long Call
Buy $272.50 Call @ $7.05
Upfront trade cost: $705 per contract
Maximum risk: $705.00
Maximum return: infinite (on upside)
P.S. remember that each contract is quoted at the per-share rate but represents 100 shares of the underlying security.
I'm considering the COIN August 2nd $272.50 calls, currently trading around $7.05 per contract. My bullish thesis suggests the stock could reach a target price of $280 in the next 10 days.
If this price target is achieved, it would translate to a potential return of approximately 141% or $991 per contract. This represents a significant potential gain for a relatively short holding period.
Of course, the stock may move differently, getting to the target sooner, later or not at all, with returns ranging from +235% returns, to -100%. But most importantly, we know the maximum amount of risk built into the trade, allowing us to properly fit it into a portfolio.
Image Source: Options Trading Calculator
Key Takeaways
The confluence of bullish factors – Bitcoin's momentum, positive political developments, and Coinbase's technical strength – suggests a compelling opportunity for investors seeking to capitalize on the growing cryptocurrency market.
Finally, it is worth noting that Coinbase enjoys a Zacks Rank #2 (Buy) rating, adding even more bullish variables to the trade.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
