Earn A 14% Yield Waiting To Buy Coinbase At A 67% DiscountIdea : Sell Coinbase $25 strike puts expiring 5/19/2023 for $55 per contract ($0.55 market bid)
Note : Your broker will reserve $2,500 in buying power for every contract sold.
Stats :
-67% breakeven (underlying stock can drop this much until assignment)
13.6% annualized return
97% chance of max profit
Comments : Coinbase is a bedrock crypto company. The exchange is one of the last remaining firms in the regulated space, and while there has been some uncertainty recently about the banking sector and their commitment to facilitating crypto “bridging”, we expect that fears are overblown, and the company will continue to work towards consistent profitability and cash flow. Base, Coinbase’s new Ethereum L2 should help this goal, along with new initiatives the company continues to roll out.
The recent rally in crypto prices has helped the stock as well, as the sector seems poised for a rebound on the back of issues present in the traditional monetary/financial system.
Risks : Should regulators effectively prevent Coinbase from facilitating fiat payments in addition to crypto transactions, then the stock would take a beating. Additional price pressure on cryptocurrencies could also hurt earnings, as reduced interest and transaction volume hurt exchange fees. Finally, the stock is simply rather volatile as a result of having a wide variety of potential future long term operational and financial outcomes. Should the stock drop precipitously on no news, or on tactical positioning by funds and other market participants, then this trade could suffer losses.