
In many ways, blockchain mining firm Marathon Digital (MARA) is a frustrating victim of poor timing. To be sure, the company benefitted handsomely from the explosion of demand for digital assets last year. Unfortunately, enthusiasm for the risk-on sector couldn’t sustain itself in 2022, leading to sharp losses for MARA stock. Nevertheless, options traders began duking it out in the derivatives arena regarding its forward trajectory.
Before anyone gets cute and decides to join in on the fun, investors must realize the sharp risks involved with MARA stock, either in the open market or the options segment. Although Marathon enjoyed a meteoric rise in valuation since late 2020 – just when cryptocurrencies started waking up – the period since November 2021 has been downright ugly. On a year-to-date basis, MARA fell a staggering 61%.
Fundamentally, all eyes focus on the Federal Reserve. During the initial onset of the COVID-19 crisis, the Fed did its part by instilling a dovish monetary policy. Combined with unprecedented fiscal stimulus, these actions arguably helped the U.S. economy overcome what might have been a catastrophic storm. At the same time, rampant inflation meant that the central bank eventually had to mitigate prior excesses.
Not surprisingly, then, the Fed remains committed to its hawkish pivot. In short, it continues to raise the benchmark interest rate, thus increasing borrowing costs. Such a maneuver reduces business expansion incentives as the cost to fund such initiatives diminishes. Simultaneously, investors are less likely to frivolously distribute their funds to speculative ventures as deflationary forces tend to increase the dollar’s purchasing power.
Therefore, while MARA stock offers some speculative appeal – that being cryptos can always swing higher – the Fed’s monetary policy largely dominates the blockchain market’s demand structure. As a result, MARA found itself a chair regarding unusual options activity, though not all traders were bearish.
MARA Stock Stuck in a Tug of War
Following the conclusion of the Oct. 4 session, MARA stock found itself amid a sea of options contracts that saw aberrant action. Traders piled into three transactions, two with bearish implications (put options) and one with bullish implications (calls).
In the former category, traders targeted the $12.50 puts and $12 puts. Both transactions feature an expiration date of Oct. 7, 2022 – this coming Friday. Since MARA stock closed the Tuesday session at $12.88, both puts are also out of the money.
Regarding the $12.50 put, volume reached 7,780 contracts against an open interest reading of 255. The bid-ask spread as represented by the midpoint price (48 cents) was 10.42%, a contextually wide margin. For the $12 put, volume reached 9,942 contracts against open interest of 516. Here, the bid-ask spread came out to 6.45%.
On the other end of the scale, bullish traders moved into the $15 calls with an expiration date of June 16, 2023. With 254 days till expiration, market participants might enjoy significant profitability, assuming the crypto sector recovers before then. For this trade, the spread came out to 6.36%.
Probably to no one’s shock, the predominant trading sentiment in the options market for MARA stock is bearish. Per data from Barchart.com, Marathon’s put/call open interest ratio stands at 0.85. Typically, the delineation between bullish and bearish sentiment is 0.70, with figures higher than this threshold representing pessimism (as more traders are buying put options than calls).
Even the Long-Term Bull Thesis Draws Questions
To be completely fair, the battle raging in the options arena over MARA stock really focuses on near-term pessimism versus long-term optimism. It’s not that bullish traders can’t read a chart and acknowledge the obvious. Rather, over time, Marathon could become a viable investment opportunity. Given how dynamic the underlying crypto sector is, it might not seem like a bad wager.
Nevertheless, even with the time period expanded, MARA stock presents serious risks. If you look at the history of the crypto sector by total market capitalization, you’ll note that digital assets last peaked in late 2017/early 2018. Although cryptos poked their heads up occasionally on their way down, they eventually found themselves in the pit. It wasn’t until late 2020/early 2021 that circumstances appeared auspicious for the blockchain.
So, it’s reasonable to assume that cryptos may take another three years to spark another resurgence. However, this three-year period is hardly guaranteed. Maybe the time will be shorter. Or maybe, the time will be longer.
With the Fed dramatically changing its monetary policy to a hawkish stance following years of dovish policy, it’s quite possible that cryptos may encounter an extended winter. If so, taking the long-expiry call option for MARA stock might be a bad deal.
An Exclusive Arena for Gamblers
With cryptos likely to swing in any direction at a moment’s notice, any smart analyst will be at least somewhat hesitant about making too grandiose of a forecast. Still, trading MARA stock in the options arena seems unusually risky. With the Fed taking the wind out of risk-on assets, only battle-hardened speculators should consider Marathon Digital.
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