Coinbase is the No. 1-ranked stock in its industry group and looks ready for an upside breakout.
The stock has been a solid performer since the election, and with bitcoin near $100,000, Coinbase could be headed even higher.
A more conservative way to play Coinbase using options is via a bull put spread.
As a reminder, a bull put spread is a defined-risk strategy, so you always know the worst-case scenario in advance.
This type of trade will profit if Coinbase trades sideways or higher, and even sometimes if it trades slightly lower.
Traders who think Coinbase will stay above 260 through mid-January could sell a 260-250 bull put spread for around $1.80, based on quotes late Wednesday.
Option Trade Generates $180 In Premium
Selling this spread would generate roughly $180 in premium with a maximum risk of $820.
If the spread expires worthless, that would be a 22% return in six weeks provided Coinbase stock is above 260 at expiration.
The maximum loss would occur if Coinbase stock closes below 250 on Jan. 17, which would see the premium seller lose $820 on the trade.
The breakeven point for the trade is 258.20. That's 260 less the $1.80 option premium per contract.
Managing Coinbase Option Trade
I would set a stop loss if the loss is equal to the amount of premium received. In this case, it would be $180. Sticking to this stop-loss level will help avoid large losses if the trade goes south.
According to the IBD Stock Checkup, Coinbase is ranked No. 1 in its industry group. It has a Composite Rating of 99, an EPS Rating of 81 and a Relative Strength Rating of 96.
Coinbase has already reported earnings, so this trade does not have any earnings risk.
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 X/Twitter at @OptiontradinIQ
