COIN Earnings: Iron Condor Could See 40% Return On Risk

Coinbase (COIN) is due to report earnings after the market close on February 15th. The Barchart Technical Opinion rating is an 80% Buy with an average short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend.

COIN rates as a Strong Buy according to 8 analysts with 1 Moderate Buy rating, 6 3 Hold ratings, 2 Moderate Sell ratings and 6 Strong Sell ratings. Implied volatility is 96.75% which gives COIN an IV Percentile of 73% and an IV Rank of 42%.

Coinbase is the largest U.S. cryptocurrency exchange, trading some 50 different digital assets.

Today, we’re going to look at an iron condor trade placed over earnings. These types of trades can be high risk, so make sure you understand how they work before attempting something like this.

An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

COIN IRON CONDOR

As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

First, we take the bull put spread. Using the February 16th expiry, we could sell the $130 put and buy the $125 put. That spread could be sold yesterday for around $0.95.

Then the bear call spread, which could be placed by selling the $175 call and buying the $180 call. This spread could be sold yesterday for around $0.50.

In total, the iron condor will generate around $1.45 per contract or $145 of premium.

The profit zone ranges between $128.65 and $176.45. This can be calculated by taking the short strikes and adding or subtracting the premium received.

As both spreads are $5 wide, the maximum risk in the trade is 5 – 1.45 x 100 = $355.

Therefore, if we take the premium ($145) divided by the maximum risk ($355), this iron condor trade has the potential to return 40%.

If price action stabilizes, then iron condors will work well. However, if COIN stock makes a bigger than expected move, the trade will suffer losses.

Trades held over earnings allow little room for adjusting, so they can be a bit hit or miss. 

Conclusion And Risk Management

Short-term trades over earnings such as these ones are almost impossible to adjust. Either the trade works, or it doesn’t so position sizing is vital. Short-term trades also have assignment risk, so traders need to be aware of that possibility. This type of trade may not be suitable for beginners.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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