Trade Alert: Betting Against A Crypto Company
As U.S. regulators target the sector.
Crypto founder Do Kwon, who was arrested in Montenegro this week, and indicted by a U.S. district court.
Note: unlocking this post as I exited my put position earlier this week.
The Empire Strikes Back
As I mentioned in my previous post, crypto boosters have been using America’s banking crisis to promote their coins,
And foment fear of hyperinflation,
I concluded by saying that one of our next bearish bets would likely be on a crypto stock:
In light of all that, I think the bitcoin bros may be tempting fate by spreading FUD about the dollar. The U.S. may not be able to bully Russia or China, but its regulators and the Fed can still take some air out of crypto.
With that in mind, one of our next trade alerts here will likely be bearish bet on a stock in the crypto sector.
Details on that trade are below.
Today, I bought the $40 strike, September expiration puts on Coinbase Global, Inc. (COIN) at $6.55.
Coinbase had been on my radar recently, as it’s the kind of company in general I like to bet against, one that:
Has weak fundamentals (in Coinbase’s case, negative earnings, declining revenues, a Piotroski F-Score of 2, etc.)
Has rallied recently despite that (even after this week’s drop, Coinbase was still up more than 97% year-to-date, as of Thursday’s close.
This week added another element that makes it an interesting short candidate: the SEC is coming after it.
Note that this isn’t exactly a bet against crypto itself. To be clear, if crypto tanks, there’s a better chance Coinbase tanks too, but it’s possible for Coinbase to decline even if major coins like Bitcoin do well. One reason is that crypto ethos emphasizes direct ownership of the assets (e.g., in cold storage), because of fear of the sort of risks holding crypto at an exchange entails (hackers, regulators, etc.).
The 5.00 strike options do not necessarily imply a move to zero in the stock, they also serve as a low cost hedge for traders selling premium at higher strikes . Also, the bottom leg frees up margin under RegT (retail) and JBO (market maker) rules.
BTO COIN 5 strike Puts exp Sept 15 2023 1x0.15, 4x0.18
exch EDGX
Trade Preview: 5 point move down in very near term pushes this option up 88% to 0.32 if implied volatility remains constant. This is much higher leverage than nearby strikes and expirations.