900% Gain In COIN Options — How We Bag Triple-Digit Wins – March 15, 2022

What I Look For In A Trade Like COIN…

There are two keys to our success with this COIN options trade that I’d like to share so you can potentially replicate them in your portfolio.

First, the macro picture was ripe for a fall. The broader market was looking weak, and our Bitcoin index — which commonly impacts COIN’s trading — had just bounced off a meaningful resistance level at 45,000. We saw a bearish shooting star candle on Wednesday and then a strong followthrough on Thursday, making it very clear to me that the Bitcoin index would at least fall to 40,000.

So, the broader market looked like it was going to move lower… we had Bitcoin looking like it was going to go lower as well… and that’s what brought me to COIN.

Now, COIN was in the process of forming its own interesting technical picture. After hitting resistance at $215 a few times, it had formed a descending triangle with clear support around $160.

Looking at the charts, I could see the environment was right for a very big trade in COIN. In the first half of the week, the stock had already fallen $15 from about $195 down to $180. Another $15 drop would put it dangerously close to an important price level at $160, which would help draw the stock down.

This price target was set about 11% below where shares were trading at the time, though… so you may be wondering how I landed 900%.

That brings me to the second key component of this trade.

I didn’t tell my readers to short shares of COIN. Instead, I advised them to purchase a put option on the stock.

If you’re completely new to buying put options, that’s okay. They’re one of the most basic and common of all options strategies.

Puts 101: How We Used COIN Options to Profit From Stock’s Decline

Puts are commonly used as a substitution for shorting stock. But with options, we have the opportunity to preserve our trading capital by risking less money upfront, while also amplifying our potential profits.

You see, put options go up in value when the underlying security drops. Technically speaking, a put is an option contract that gives the owner the right, but not the obligation, to sell 100 shares of stock at a specified price (the strike price) at any time before a specific date (the expiration date). When the price of the underlying stock falls, the price of the put option goes up. Usually, you’re simply looking to sell the put for more than what you bought it for.

Buying a put option is similar to shorting shares of a stock. In both cases, you are bearish on the company. The main benefit of buying the put option is leverage. One contract controls 100 shares of a stock, but it costs much less to enter into one contract than shorting 100 shares of a stock outright.

In the case of COIN, I recommended buying put options with a $170 strike price that expired March 4.

We entered the position on March 3 at a cost of $0.60 per share, or $60 per contract.

As long as COIN’s price fell a little below $170, before the option expired on March 4, we would make a profit.

For this trade, however, I was looking for shares to fall all the way down to $160. If shares could get there, we’d be looking at a nearly $9 gain on our $0.60 puts, or a 1,500% target gain.

When the market opened on Friday, COIN followed my plan nearly to a T. Shares opened at $177.61 and dropped all the way down to $162.16 — an 8.7% fall. Not quite as low as I had targeted, but more than enough to give us a big-time winner. And when you look at how our put options performed, you’ll really understand how that leverage makes a difference.

As I mentioned before, we purchased our put options Thursday afternoon for $0.60. When we exited our trade on Friday, we sold the put options for $6. That works out to a 900% profit. 

In other words, our options delivered a gain nearly 100 times the amount we would have made from shorting the stock outright. While these kinds of returns aren’t impossible with stocks, they are exceedingly rare. With options, on the other hand, these huge triple-digit returns aren’t pipe dreams.

I’m not saying trades like these COIN options fall off trees for us, but we do typically try to put ourselves in a position to snag these kinds of gains.

Author: Christian Tharp