Options Corner: Turn Coinbase's Volatility Into Opportunity With Long Iron Condors

Cryptocurrency exchange and financial technology firm Coinbase Global Inc COIN offers a compelling mechanism to wager on digital assets without dealing with the unusual pitfalls of crypto investing. These hazards include discarded hardware, forgotten passwords or even technical gremlins. Still, with Coinbase stock having virtually doubled in value this year, some skepticism may exist regarding its immediate forward viability.

Looking at the charts, Coinbase blitzed higher following the election results. Since then, however, the security has entered a sideways consolidation pattern. It's possible that it could swing higher from here. However, such a bullish development may depend on the underlying crypto ecosystem. With the total market capitalization of all digital assets above $3.6 trillion, a healthy correction wouldn't be unexpected.

Conclusion? It's honestly a guessing game where Coinbase stock may head next. Fortunately, with an options strategy called the long iron condor, the focus is on volatility or price movement rather than the ultimate direction of the security.

Also Read: EXCLUSIVE: Experts Share Their Top Crypto Predictions For 2025

Profit From Indecisiveness In COIN Stock

Paralysis by analysis represents one of the most frustrating dynamics in trading. However, if a trader is confident in a high magnitude of movement (but unclear on the asset's direction), then a long iron condor may represent an ideal solution.

An advanced options strategy, the long iron condor features four legs (or strike prices). Structurally, it helps to think of this trade as the combination of two vertical spreads; specifically, a bear put spread and a bull call spread.

Essentially, the condor features a north endzone and a south endzone. The name of the game is to get the ball across either outer strike prices to receive the full reward. A partial reward materializes when the top or bottom breakeven thresholds are breached.

By logical deduction, the long iron condor trader doesn't care where the target stock moves to, so long as it moves enough. Naturally, the worst outcome for the speculator is a decline of kinesis. Therefore, buyers of long condors anticipate a rise in implied volatility.

Finding the Right Long Iron Condor To Trade

Given that the long iron condor rewards heightened volatility, it makes sense for traders to seek "narrow" strike price ranges. That way, there's less distance for the ball to reach either endzone. However, narrow long iron condors typically feature significant positional risk (a large cash outlay) in exchange for the reduced probabilistic risk (likelihood that the trade will be successful). Also, highly probable trades usually feature miniscule payouts.

On the other hand, "wide" long iron condors tempt traders with the biggest payouts and low positional risk. However, the probabilistic risk tends to be so great that such transactions should be viewed extremely carefully, if not skeptically.

Subsequently, finding the right long iron condor involves a balancing act. The ideal condor will feature a reasonable probability that the ball can reach either endzone. This balance is important because the trader is paying a premium to attack both profitability targets. If the trader had a strong directional bias, it would make sense to just pay for one vertical spread — either a bear put or a bull call.

Based on the week-to-week mobility of COIN stock, the 287.50P | 295.00P || 310.00C | 317.50C condor for the options chain expiring Dec. 20, 2024, may make sense. This is how the trade breaks down:

• Sell the $287.50 put.
• Buy the $295 put.
• Buy the $310 call.
• Sell the $317.50 call.

With this setup, there's a reasonable chance — given COIN stock's high mobility — to reach either profitability target. Further, the payout, while not particularly great at 33% at the time of writing, still affords the trader a mechanism to win if COIN marches higher or if an unexpected headwind temporarily derails the bullish narrative.

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