Coinbase Global (COIN) Stock
Spectacular December surge, climbing over 6% in early trading on December 27 to $183.18 per share. From its recent low of $71.86 on November 26, the coinbase stock has soared an impressive 155%.
This rally is primarily driven by a significant surge in Bitcoin (BTCUSD) and other cryptocurrencies throughout December. Investors are optimistic about the SEC potentially approving ETFs based on spot-traded (rather than futures-traded) cryptocurrencies.
However, what has caught analysts’ attention today is the spike in unusual activity in short-term put options for Coinbase shares. According to Barchart’s Unusual Stock Options Activity report, this may be linked to hedging strategies or short-sellers seeking to generate income through option premiums.
Short-Term Put Options in Focus
The report highlights three large tranches of put options with high Volume/Open Interest (VOL/OI) ratios, indicating significant market movements. Two of these batches expire this Friday, while the third is set to expire on January 5. This activity suggests traders are aiming for profits within a very short time frame—just 2 to 9 trading days.
One notable example is the January 5, 2024, put option with a strike price of $142. This strike price is 23.67% below the current stock price ($183.42), making it an out-of-the-money (OTM) option. These contracts traded at a $0.45 premium per share, offering a 0.316% yield relative to the strike price.
The Strategy: Selling Deep OTM Puts for Income
This pattern indicates that traders might be short-selling deep OTM options as a strategy to generate immediate returns. When shorting puts, sellers must deposit the full strike price as collateral. For instance, shorting 1,000 contracts with a $142 strike price would require $14.2 million in collateral. In return, the seller would immediately collect $100,450 in premiums, yielding a 0.316% return upfront.
Though the initial yield may seem small, annualizing it reveals significant potential. If this strategy were repeated every nine days, the annualized return would reach approximately 12.64%. Moreover, sellers don’t have to hold the options until expiration—they can close their position early by buying back the contracts once the premiums decrease, allowing them to reinvest in new trades.
Why This Makes Sense for COIN Investors
This strategy carries relatively low risk because COIN stock would need to plummet over 23% in just nine days for the seller to be obligated to buy shares at the strike price. With the bullish outlook on cryptocurrencies and the anticipation of ETF approvals, such a dramatic drop seems unlikely in the near term.
For Coinbase investors, selling deep OTM put options could be an attractive way to earn extra income. At worst, they’d end up purchasing COIN shares at a significant discount—a scenario that might not be undesirable, given the stock’s current momentum.
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