Should You Buy the Dip in MARA Holdings (MARA)? It’s Complicated.

Thanks to the blistering rise in cryptocurrencies immediately following the 2024 presidential election, blockchain miner MARA Holdings (MARA) offers an enticing proposition. At the moment, MARA stock incurred a drop of almost 26% on a year-to-date basis. Still, with investors eager to buy cryptos on discount, should market traders follow suit and buy MARA on the dip? It’s actually a complicated narrative.

To be sure, MARA stock offers a tempting proxy for digital assets. While true speculators will invest in individual coins and tokens, the blockchain ecosystem carries unusual risks, including aggravating ones such as lost passwords and hacking incidents. Therefore, a publicly traded security related to the crypto ecosystem may offer a best-of-both-worlds type of exposure.

At the same time, historical trends over the past five years suggest that betting on MARA stock as a dip-buying opportunity won’t be as successful as commonly assumed. Therefore, it’s probably best to take a nuanced approach. In the near term, I am Neutral on MARA, and I believe a long iron condor options strategy offers an intriguing play.

Establishing the Statistical Groundwork of MARA Stock

A central difficulty in taking an aggressively directional wager on MARA stock is the lack of significant bias. Over the past five years, the weekly performance of MARA (defined as the percentage difference between Monday’s opening price and Friday’s close) yields a 50.2% success ratio. Stated differently, at the beginning of any given week, it’s a coin toss as to whether the end of the period will offer a positive (non-zero) return.

In normal circumstances, then, deciphering the direction of MARA stock is a guessing game. However, because the underlying company is tied to the popular crypto space, it’s reasonable to believe that when the stock corrects sharply, bullish investors will be eager to buy the dip. To calculate the odds, investors can apply a Bayesian inference, updating assumptions based on the anchor event of extreme weekly volatility.

Over the trailing five years, there have been 67 weeks where MARA stock incurred a loss of 10% or worse. Of this tally, there have been 33 instances where the average of the subsequent four weeks returned a positive result, leaving a success ratio of 49.25%. Essentially, in the near term, whether MARA suffers a huge loss or not has practically no bearing on where the stock ends up.

Betting on Volatility as Opposed to Direction

With no meaningfully empirical way to decipher the next move for MARA stock, a directional wager arguably isn’t prudent. Instead, a trader may consider a directionally neutral options strategy called the long iron condor. Basically a combination of a bull call spread and a bear put spread, this particular condor establishes an upside and downside profitability zone. The idea is for the stock to rise or fall significantly enough to hit either target.

In the past five years, whenever MARA stock fell double digits for the week, the average positive return over the subsequent four weeks came out to 9.53%. On the other hand, the average negative return landed at 5.86%. For the week beginning Dec. 16, MARA slipped almost 15%. Should the above logic follow, there’s a good chance that shares will eventually land between a range of $18.79 and $21.86.

As stated earlier, it’s going to be difficult to figure out which of these price targets is more likely to occur. Hence, I’m maintaining a Neutral stance. However, the beauty of the long iron condor is that you can bet on both outcomes. If one of the events comes true, you stand a chance of collecting the full payout.

Eliminating Guesswork Out of the Iron Condor

Among multi-leg options strategies, the iron condor represents one of the most difficult trades to narrow down because of the four legs or strike prices involved. Some optionable securities may feature hundreds of different condors for just one options chain. However, with the dynamic probability analysis mentioned earlier, the job of finding the ideal transaction is easier since we have upper and lower benchmarks to work with.

Let’s start with the lower price target first. As stated earlier, MARA stock could land at $18.79 by January 17, which is four weeks ahead of the week ending December 20 (when shares almost lost 15%). However, as of last Friday’s close, MARA had already slipped to $18.44. Therefore, it’s not out of the realm of possibility that the security could drop 2.4% to $18. This could represent the lowermost strike price of our condor.

Next, we’ll address the upper target. The earlier probability analysis revealed an upside price projection of $21.86. Therefore, the uppermost strike price of our condor could be $21.50. In my opinion, then, the ideal long iron condor to consider for the options chain expiring January 17 is the 18.00P | 18.50P || 21.00C | 21.50C trade (or the 18/18.50 bear put spread combined with the 21/21.50 bull call spread).

Wall Street’s Take on MARA Holdings

Turning to Wall Street, MARA stock has a Moderate Buy consensus rating based on four Buys, eight Holds, and zero Sell ratings. The average MARA price target is $27.80, implying 60.79% upside potential.

See more MARA analyst ratings

The Takeaway: Take a Nuanced Approach with MARA Stock

While MARA Holdings offers a popular proxy for digital assets, the empirical evidence collected over the past five years reveals little in the way of pricing predictability, even under extreme duress. Stated differently, investors aren’t buying the dip in MARA stock to the extent that outsider observers might believe. Therefore, investors should take a nuanced approach.

Rather than bet on direction, traders may consider wagering on rising volatility. A long iron condor allows speculators to profit so long as the underlying security hits either the upside or downside price target. Given historical trends, the ideal condor could be represented by the combination of the 18/18.50 bear put spread and the 21/21.50 bull call spread.

Disclosure.