One of the most interesting “smart money” trades we came across yesterday was with Coinbase Global Inc. (NASDAQ: COIN).
If you’re new here, a “smart money” trade is a relatively large volume option trade most likely made by a pro trader. The idea is to analyze unusual options activity, identify an interesting “smart money” trade, and then make our best guess as to:
- Which direction the trader thinks the stock is headed
- How much they think it will rise (or fall), and
- In what time frame this will all happen.
If we like what we see after putting all these pieces together, we can mimic the “smart money” trade (on a smaller scale), and potentially ride alongside our pro trader to profits. With all this in mind…
A Pro Trader Just Bet $5,244,000 that COIN will Stay Bearish For the Next 10 Weeks
On Friday, July 08, 2022, a pro trader seems to have bought 4,600 of the September 16, 2022, $60 put options on COIN for $11.40 per contract. His outlay was $5,244,000.
Interestingly, there seem to be multiple option trades done for COIN yesterday, for the same strike price and expiration date, with the total amount translating to multi-million dollars.
COIN – Option Trade
The trade’s breakeven point is at $48.60, meaning that COIN needs to decline to $48.60 for the put option trade to break even. This is a nearly 19% downside from the stock’s previous close of $60.29. And then for every $1 the stock falls below $48.60, our “smart money” trader will make $460,000!
On analyzing the chart of COIN, the stock seems to have broken down from a downtrend channel (marked as blue color lines). It is also currently trading below a resistance area (marked as a pink color dotted line). All this makes it likely our pro trader is bearish on COIN.
COIN – Daily Chart
This lends credence to our conclusion that the pro bought these put options, as opposed to selling them.
If you agree and would like to mimic this trade, here’s how:
Buy to open the September 16, 2022, $60 put options on COIN for $11.40 per contract or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
Happy Trading!
— Trades of The Day Research Team
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