I actually placed today’s trade last month, but since it just filled today, and we’ve had a number of new subscribers join since then, I am posting this as a trade alert today. Here’s what we wrote about it last month:
Waiting For The Right Setup
In our Exits post over the weekend, I wrote about using Chartmill’s Setup Rating, a measure of technical consolidation, to time entries into post-earnings trades;
In the past, I’ve placed post-earnings trades in situations like this, where a stock is down despite solid earnings (also in some cases where there was an earnings miss but I was still bullish on the stock. One difference I’m doing now is waiting for some price consolidation before placing post-earnings trades. Specifically, I set an alert on Chartmill for when the Setup Rating on the stock hits 7 (out of 10), while the overall Technical Rating is at least a 6. That increases the chance we’re not catching a falling knife. Then we can jump in and place a longer-term bullish trade. I plan to do that with COIN, as I am still bullish on it.
Today, Coinbase (COIN -3.83%↓) has a set-up rating of 7, so I placed a bullish bet on it expiring after its next earnings release.
Looking For An Upside Target
To figure out what kind of upside to aim for, I looked at the expected move for COIN going out to September 20th (the first options expiration date after it releases earnings again in August). I had ChatGPT run the numbers for me based on my inputs:
A move of nearly 38% seems possible by then, but I decided to aim for one of about 20% instead, to be less aggressive. Today’s trade will give us a maximum gain of about 200% if that happens.
I actually made a mistake in that last paragraph. Today’s trade will give us a maximum gain of about 300%, not 200%, if COIN hits our target by September 20th.
Details below.
Our Bullish Trade
This one is a vertical spread expiring on September 20th, buying the $260 strike calls and selling the $270 strike calls on COIN for a net debit of $2.50. The max gain on 1 contract is $750, the max loss is $250, and the break even is with COIN at $262.50. This trade hasn’t filled yet. This trade filled on 6/21/2024 at $2.50.
Exiting This Trade
I’m going to set a GTC order to exit this one at a net credit of about $9.75 and lower that price, if necessary, as we approach expiration.
