Crash Protection For Coinbase

So, that may have colored his thoughts on Coinbase to some extent. As to Schiff's claim that Coinbase CEO Brian Armstrong dumped 71% of his shares in the company: no. The percentages Schiff referred to are of the shares set aside for the direct listing. In Armstrong's case, that amounted to about $292 million worth of shares. Armstrong owns 19% of Coinbase; his total stake was worth about $8.3 billion as of Tuesday's close. With that in mind, let's look at how new Coinbase shareholders can stay long while limiting their downside risk in case the crypto winter starts this year. 

Downside Protection For Coinbase

For both of these hedges, we used the January, 2022 expirations to cover all of 2021 (there's also a January, 2023 expiration for Coinbase options now). In both cases, we scanned for hedges against a greater-than-23% decline, because that was the smallest decline you could hedge against while using optimal puts. 

Uncapped Upside, (High!) Positive Cost

These were the optimal, or least expensive, puts, as of Tuesday's close, to hedge 200 shares of Coinbase against a >23% decline by next January 21st. 

This and subsequent screen captures are via the Portfolio Armor iPhone app. 

You can see above why 23% was the smallest decline threshold available on Tuesday: the cost of protecting against a >23% decline was a whopping 21.97% of position value. Hedging against a smaller decline would have cost more than the decline itself. That cost was calculated at the ask, to be conservative, but it's still extremely expensive. By way of comparison, the cost of hedging Goldman Sachs (GS) against the same, >23% decline by next January was 3.4% of position value.  

Capped Upside, Negative Cost

If you were willing to cap your possible upside at 35% by next January, this was the optimal collar to hedge 200 shares of COIN against a >23% decline over the same time frame. 

View single page >> |

Disclaimer: The Portfolio Armor system is a potentially useful tool but like all tools, it is not designed to replace the services of a licensed financial advisor or your own independent ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.