Market Insights

Bitcoin is flirting with record highs and the options are getting active in Coinbase before its quarterly results.

Check out this large transaction yesterday in the cryptocurrency exchange:

• Some 35,215 December 190 calls traded for an average price of $44.87.
• Matching blocks of December 220 calls changed hands at the same times for $28.43.

Volume was below open interest in the 190 calls but not the 220s, which may suggest an existing position was closed and rolled to the higher strike.

There are two likely explanations, both of which are potentially bullish.

One possibility is that the investor entered the session owning 35,215 December 190 calls. He or she might have sold those contracts and bought the 220s. Making the adjustment would generate a credit of $16.44 and kept them exposed to further gains if COIN pushes higher in the coming weeks.

Buying and Selling Calls

Calls fix the level where investors can purchase a security. They can appreciate rapidly when prices rise but also expire worthless when shares fail to advance.

Alternately, traders can sell them against stock they own with a “covered call” strategy. That’s the other possible explanation for Tuesday’s activity.

Say the investor owned roughly 3.5 million shares of COIN. He or she might have previously sold the December 190 calls when the stock was lower. Now that they’re in the money, the investor might have bought them back and sold the higher-strike options.

The adjustment could have cost $16.44, but created the potential to earn an additional $30 if the stock is above $220 on expiration. (It works because the December 220s have more time value than the December 190s.)

Earnings are due this afternoon. Whichever trade occurred — rolling long calls or short calls — it’s noteworthy that it occurred one day before an event with the potential to move the stock.

Overall option volume was about average in the stock but calls outnumbered puts by almost 4 to 1.

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