Coinbase Global Inc. (COIN) is scheduled to report its Q4 2024 earnings on Friday morning, February 14, 2025. Given the anticipated volatility surrounding this event, a cash-secured put strategy could be an effective way to potentially acquire COIN shares at a desired price while earning premium income.
Understanding Cash-Secured Puts
Selling a cash-secured put involves writing a put option on a stock and setting aside sufficient cash to purchase the stock if the option is exercised. This strategy is typically employed by investors who are willing to buy the underlying stock at a specific price (strike price) and seek to generate income through the option premium.
Current Market Context
As of February 11, 2025, COIN is trading at $280.22. The upcoming earnings report has heightened implied volatility in COIN options, reflecting market uncertainty. Historically, COIN’s stock has exhibited significant post-earnings movements, underscoring the importance of careful strategy selection.
Implementing the Cash-Secured Put Strategy
1. Select an Appropriate Strike Price and Expiration Date:
- Strike Price: Choose a strike price at which you’re comfortable purchasing COIN shares. For instance, selling a put with a strike
price of $250 means you’re willing to buy COIN at $250 per share if assigned.
- Expiration Date: Options expiring shortly after the earnings date, such as February 14, 2025, will capture the earnings-related
volatility.
2. Analyze Premiums and Implied Volatility:
- Higher implied volatility leads to higher option premiums. Selling a put option in this environment allows you to collect more
premium, compensating for the increased risk. E.g. 15 delta volatility has risen to 108 from 84 last week.
3. Calculate Potential Outcomes:
- If the Stock Price Remains Above the Strike Price at Expiration: The put option expires worthless, and you retain the premium as
profit.
- If the Stock Price Falls Below the Strike Price at Expiration: You’re obligated to purchase COIN at the strike price, effectively
acquiring the stock at a discount (strike price minus the premium received).
Example: Selling a Cash-Secured Put on COIN
- Strike Price: $250 that is recent double bottom and 50% Fibonacci retracement between swing high and low since September
last year
- Expiration Date: February 14, 2025
- Premium Received: Work as a limit order at $5 per contract where this option mostly traded this month so far
4. Potential Outcomes:
- COIN Closes Above $250 at Expiration: The option expires worthless, and you keep the $500 premium (since each option
contract represents 100 shares).
- COIN Closes Below $250 at Expiration: You’re assigned and purchase 100 shares at $250 each, but your effective purchase
price is $245 per share ($250 strike price - $5 premium).
5. Considerations:
- Assignment Risk: Be prepared to purchase COIN shares if the option is exercised.
- Earnings Volatility: Earnings announcements can lead to significant stock price movements. Ensure you’re comfortable with the
potential scenarios.
- Risk Management: Allocate sufficient capital to cover the purchase if assigned and consider setting aside additional funds to
manage potential further declines in stock price.
Conclusion
Selling cash-secured puts on COIN ahead of its earnings report can be a strategic way to generate income and potentially acquire shares at a favorable price. However, it’s crucial to assess your risk tolerance and investment objectives, especially given the heightened volatility surrounding earnings events. Consulting with a financial advisor is recommended to ensure this strategy aligns with your overall investment plan.
