On 30th Oct 24, a guru that I paid to follow on Discord went on a heavy bet on Coinbase just before the company announced its earnings. He was very bullish on Coinbase and Bitcoin, and was confident that Coinbase would rise to a new all-time high in the months to come. Here are the trades he shared before Coinbase’s earnings report in the after-hours of 30th September 24.
Trade 1: He bought USD73.26k on Coinbase Butterfly CALL trade, expiring in 17 Jan 25.
Trade 2: He also bought a very short-term BULL CALL Spread with USD7.8k worth of capital, and the contracts expire on 1st Nov 24.
Trade 3: Lastly, he bought USD21k of BULL CALL Spread that expires in 29 Nov 24.
Risk of Trades
For each of his 3 trades, there are certain level of risk involved.
Coinbase’s share price as of 30th Oct’s closing was USD211.74
For Trade 1, Butterfly CALL 300/400/500, if Coinbase does not rise to the range between USD300 to USD500 by 17 Jan 25, he will lose USD73.6k of his capital
For Trade 2, BULL CALL Spread of USD235/ 240, if Coinbase does not rise above USD235 on 1st Nov (2 days later), he will lose his capital of USD7.8k
For Trade 3, BULL CALL Spread of USD250/260, if Coinbase does not rise above USD250 by 27 Nov 24 (1 month later), he will lose USD21k of capital.
As you can see, these trades may yield him great returns (5x or more) if it goes according to plan but it can also crash miserably and causing him to lose more than USD100k if Coinbase stays sideways, drops or has a slow increase of share price over the next few months.
As it turned out, Coinbase did not report great earnings so the stock was down after hours on 30th Oct and pre-market on 31st Oct. It is likely that Trade 2 will fail as there are only 2 days in the contract.
Concluding Thoughts
For context, this guru has one of the best skills in technical analysis and has frequently predicted the correct trend and made a lot of money out of them. However, it sometimes takes just one or two bad trades to wipe out all his previous gains.
I personally think that these are very aggressive trades that require him to be absolutely spot on in order to profit. To me, the risk is much higher than the reward because contracts all have very short expiration dates and are out-of-the-money (OTM), which means their premium drops pretty fast if the share price does not move fast enough.
Thus, I stayed out of the trade on Coinbase’s earnings. Besides, I already have a bullish trade on Coinbase and the expiration date is 16 Jan 26, which gives me more than a year of buffer to wait for Coinbase to reach its target potential.
Trade details: [25 Oct 24] Bought Coinbase BULL PUT Spread
So, I just want to share this to remind all beginner traders not to blindly follow the investing/ trading guru that you worship, because they may be wrong yet they can stomach that kind of loss but you can’t. So, trade within your means and always be mentally prepared that your trade could go wrong.
[Update on 31 Oct 24] Cut Loss On His Trades
Guru cut loss on his Coinbase positions as Coinbase’s share price dropped by more than 9% due to bad earnings report.
Trade 1: -USD36.3k,
Trade 3: -12.8k,
Trade 2 (likely to expire worthless): -7.8k.
Total loss in less than 3 days = USD56.9k
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