If you were one of the many traders looking for Coinbase stock options to trade after last week's direct listing, you noticed none were available. That's changed now, and options on Coinbase are available for trading this week.
Coinbase Global Inc. (NASDAQ: COIN) issued shares to the public via direct offering at $250 on April 14, 2021. This was different from a traditional IPO in that the owners sold their own shares without creating new shares. That avoided underwriting fees, as well as the normal six-month lock-up period for company insiders.
It also affected how options could be used on the stock.
For stocks to have options available, the stock needs to be publicly listed, have at least 7 million shares outstanding, have at last 20,000 shareholders, and trade above $3 per share for at least five days.
Now that COIN has been public for a week, it meets all the requirements. You can now buy Coinbase stock options.
But which options should you buy?
How to Trade Coinbase Stock Options
The first thing to know is options on new stock issues like Coinbase carry certain risks, including volatility, as market makers and traders grapple with its interest and trading patterns.
That presents opportunity too.
One way to take advantage of the volatility is to sell options, especially if you want to eventually own the stock. By selling put options, you get paid a healthy premium in exchange for an agreement to buy the stock at a specific price, if the stock drops to that price.
Let's say you are not ready to spend over $300 per share on Coinbase stock and think it will pull back in the next few weeks. If you are willing to buy the stock at, say, $280, you can sell the $280 put. You collect a nice fat premium, thanks to high volatility, and if the stock drops to your price, you are contracted to buy it. In this case, you will own the stock at the price you want and get to keep the premium, too.
If the stock keeps moving higher, you still keep the premium. And you can sell another put at a higher strike, too.
Another way to make money in the early days of options trading on a new stock is to listen to a pro.
Shah Gilani has been in the markets for 38 years, including his own seat on the Chicago Board Options Exchange. You don't make it there without knowing a thing or two about options trading.
Shah is excited about trading COIN options, to put it mildly.
He's so excited, he's going to share his first-ever Coinbase options trade with his subscribers on April 27 at noon. If you're not already a subscriber to his e-letter, Total Wealth, then enter your email below to sign up. It's completely free, and you'll be the first to see his Coinbase trade.