On Friday, the cryptocurrency sector witnessed about a 3% lift in market capitalization, which wasn’t the most surprising development. Earlier, the equities arena enjoyed a positive session despite the looming threats of tariffs under the incoming Trump administration. Thankfully for investors, relatively strong retail sentiment has managed to keep the bears in check.
So, with optimism in full swing amid the traditional start to the holiday shopping season — combined importantly with a recovery rally in decentralized digital assets — the backdrop should be positive for crypto wallet and exchange Coinbase (COIN), right? Well, not quite.
While other names enjoyed a march northward, COIN stock suffered an erosion of almost 5%. For the final week of November, shares gained less than half-a-percent. Surely, this blip in the radar isn’t going to take away from the bigger picture. In the trailing month, COIN gained more than 65%. Since the beginning of January, the equity has nearly doubled.
Still, one thing is very clear: COIN stock is incredibly volatile.
At the moment, its average implied volatility (IV) comes in at 78.15%. While that’s lower than the historical volatility (HV) of 128.29%, the market still anticipates significant movement for COIN stock. It must be said that its IV rank or its relative volatility has diminished in recent sessions. Still, history has shown that the ebb and flow of this metric can be violent.
Put another way, it’s difficult to know for sure where COIN stock will end up. However, it’s more reasonable to say that Coinbase will likely move somewhere. If you’re confident in the mobility of COIN rather than its direction, the long iron condor options strategy could be for you.
Barchart Premier: Don’t Trade Without It
If you’re content with simple buy-and-hold approaches, being a free member of Barchart may be good enough. However, if you’re looking for advanced options strategies that offer unparalleled flexibility — such as trading on volatility rather than on directional speculation — you must consider a Barchart Premier membership.
Without it, it’s like trying to explore a cave after having lost your flashlight. The long iron condor — especially for a popular entity like COIN stock — makes this point crystal clear.
Structurally, the long iron condor is a combination of a bull call spread and a bear put spread. From the trader’s perspective, the idea is for the underlying security to either break above or below a predetermined profitability zone. Where these zones lie depends on the condor’s wings; that is, the four strike prices that make up the condor.
Generally speaking, a narrower spread in total — meaning that the upper and lower profitability zones being close to the market price of the target security — will feature much higher probabilities of success while offering a limited payout. Often, you’ll have to put up significant funds at risk for the chance to generate a miniscule profit; let’s say $1,000 at risk to possibly earn $100.
By logical deduction, a wider spread in total — meaning that the upper and lower profitability zones being further away from the market price of the asset in question — will feature much lower probabilities of success. However, the incentive is that you’ll receive a greater payout if your thesis proves correct. Also, you may end up putting less money at risk (although this factor varies by the strike prices selected).
Under ordinary circumstances (without a Barchart Premier membership), you’d have to go through all the available strike price combinations by hand. That could be onerous. As Barchart points out, for the options chain expiring Dec. 13, there are more than 800 long iron condors to choose from. That’s ridiculous because at the end of the day, only a few trades are truly worth your time.
Establishing a Baseline for COIN Stock
Once you’ve identified that the long iron condor is the approach you want to take, the next step involves choosing your strike prices. However, you don’t want to just pick your condor haphazardly. There’s a science to this process.
First, we can reverse engineer the market’s expected price movement of COIN stock. For the aforementioned options chain (expiring Dec. 13), the implied volatility is 83.85%. Further, the time decay adjustment is 0.1887 (which is the square root of the calendar days to expiration divided by 365 days). Multiply these two metrics with the share price ($296.20) and you get $46.87. Therefore, COIN may rise to $343.07 or fall to $249.33.
Second, we can consult Barchart’s Expected Move calculator. Because this calculation is based on 85% of the value of the at-the-money straddle (of COIN stock), this metric tends to be more conservative than the reverse engineering process above (called stochastic analysis). Barchart states that COIN may rise to $327.65 or fall to $264.75.
Using the latter pair of numbers, our baseline condor would be the 270.00P | 277.50P || 315.00C | 322.50C. This trade puts the upper breakeven price at $320.70 and the lower breakeven at $271.80. By putting $570 at risk, we potentially stand to earn $180, or a payout of 31.58%. For greater risk-reward, consider the 265.00P | 277.50P || 315.00C | 327.50C, which puts $865 at risk to earn $385 or a 44.51% payout.
For me, the ultimate play is the 250.00P | 265.00P || 325.00C | 340.00C. This puts $680 at risk for the chance to earn $820 or a payout of 120.59%. It’s attractive because, as we mentioned earlier, based on the stochastic approach, COIN stock could hit the long strike price (outer edge) of either end.
Membership Matters
Frankly, I wouldn’t waste time with condors that are riskier than the 250.00P | 265.00P || 325.00C | 340.00C. As the stochastic calculation determined, the market anticipates at most that COIN stock may rise to $343 or dip to $249. It doesn’t mean that COIN could stretch beyond this range but it’s highly unlikely.
It also means that among the 800 long iron condors available for the Dec. 13 expiration date, only about 0.4% of them are truly viable. The other condors are either too risky or are slanted to the bullish or bearish side. With the condors that I mentioned, you have a reasonable probability of winning either to the upside or to the downside.
However, you wouldn’t be able to extract this type of intelligence without a Barchart Premier membership. In my honest estimation, it’s the best deal you can get in finance, not only for the compelling trades you can find but also for filtering out the garbage that you don’t need!
