How Traders Bagged a Speedy Profit With Coinbase Puts

We noted that the stock was ripe for bear notes at the time of our recommendation

Deputy Editor
Feb 9, 2022 at 12:58 PM
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Last week, Subscribers to Schaeffer's Weekend Trader service just scored a 129% profit in just over a week with crypto wallet Coinbase Global Inc (NASDAQ:COINMarch 18, 2022 230-strike call. Below, we're going to take a look back on our reasoning for turning bearish on the Bitcoin (BTC) adjacent stock, and how COIN performed following our recommendation. 

When we entered the position on Tuesday, Jan. 19, the shares had already taken a 9% haircut for the year, and were trading back below their initial public offering (IPO) price, as well at the $50 billion market cap level. The technical trouble didn't end there, though. COIN had also breached its September lows and was testing its May 2021 bottom as well, suggesting it could break even lower into a wedge pattern. 

Even with this lackluster price performance, analysts were still optimistic, and we predicted a round of bear notes could put even more wind at the stock's back. At the time of our recommendation, 13 of the 18 brokerages in coverage called the stock a "buy" or better, while the the 12-month consensus price target of $385.50 sat at a roughly 67% premium to current levels.

Short sellers has yet to zone in on COIN's breakdown, too, as the 3.51 million shares sold short made up just 2.3% of COIN's available float.

At the time of our recommendation, Coinbase stock closed at $222. As we suspected, Citigroup chimed in with a price-target cut just one day later amid volatility in crypto prices, which may have helped push the equity back below the $210 area. This just so happened to be home to the May lows we mentioned earlier. This breakdown allowed our subscribers to lock in a 129% profit on the COIN put, in a little under a week after our initial recommendation.

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