[Options] The Other Side of the Coin

Sean McLaughlin
June 3, 2024

[Note: We entered this trade on June 4th following the entry trigger. Details below]

On today's Flow Show, Steve Strazza brought the heat.

It appears Bitcoin is about to start another leg higher. It's showing all the signs: A tightening consolidation on the verge of an upside resolution. And with the 100,000 level on the watch list of every professional and amateur market speculator, it's hard to believe that the next bullish breakout does not include a run to and through this highly watched level.

In the meantime, we equities options traders still have limited vehicle choices available to us to participate in this move. We've long used Microstrategy $MSTR as a Bitcoin proxy. But our feeling is that if Bitcoin makes the move everyone is waiting for, we will see the entire crypto space go with it, and that will be great news for a stock like Coinbase $COIN.

Here's where the charts of Bitcoin and $COIN stand now:

In the video above, we get into the finer points of how/when we're going to play this. But here's the cliff's note version:

Here's the Play:

We're going to WAIT for $COIN to break above $240 per share. If and when it does, then:

We're going to buy a $COIN October 300/350 Bull Call Spread. This means we'll be buying the 300 calls and selling an equal amount of the 350 calls. The price we pay will likely be in the $10.00 debit range. The most we can lose is the price we pay for the spread, and our gains our capped should $COIN break above $350 per share:

The max risk and gain shown here are approximated as it depends on the actual price we end up paying for this spread.

Once we're in the trade, any $COIN closing price below $205 invalidates this trade thesis and I'll look to exit on the next trading day. Additionally, if the spread loses 50% of its value at any time during my hold, I'll exit to protect what's left of the remaining premium.

Meanwhile, I expect $COIN to cruise through $300 if we get the upside breakout. I'll leave a resting limit order to sell the spread at $40.00. This would represent capturing 80% of the potential full value of the spread and it would be an approximately 4x return on our invested capital. Nice.

If you have any questions on this trade, please send them here.

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

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