• Bocconi Students Options Club

Etsy : Put Bull Spread


This association and its publications are solely intended for academic purposes and should not be used as investment advice or be interpreted as such.


Our team opted for a put bull spread strategy on Etsy (ETSY US). As we are bullish on this single stock, we decided to build up a delta positive option strategy that considers a maximum profit and loss. Here, we will analyse the company and provide an explanation of our trading strategy.

Stock Analysis

The Company

Etsy Inc. is an American online retailing company, specialized in handcrafted and vintage products. Founded in 2006 and headquartered in Brooklyn, New York, the company provides a marketplace that keeps in contact 2.7 million of active sellers with 46.4 million active buyers worldwide (data of 2019), following the firm’s philosophy of keeping the commerce “human”. Following this main idea, the company has developed its competitive advantages, which could be summarized as:

  • The power of human interactions: despite being an online platform, Etsy strongly relies on human interactions between the two sides of its clients, allowing the sellers to share the stories behind their product and encouraging the direct communication.

  • “Best-in-class search and discovery”: improving the system in order to optimize and personalize the searching experience.

  • “A brand you can trust”: providing an excellent end-to-end experience and bolstering the trust in brand through a purchasing experience that feels safe and supportive.

  • “A collection of unique items”: not only the firm deals with handcraft and vintage products, but it also cares for their quality, with the result of having a vast collection of unique items. In a 2019 survey of Etsy buyers, 88% agreed that Etsy has items that you cannot find anywhere else.

Firm activities & position

As previously stated, the company is an online retailing company, which deals with vintage and handcrafted products. As of 2018, the company also acquired Reverb Holdings Inc., the largest online marketplace dedicated to new, used, and vintage musical instruments.

Revenues are mainly divided into two categories: marketplace and services. The former accounts for approximately 72.5 % of total revenues (2019) and is comprised of the fees a seller pays us for marketplace activities, which are mainly constituted by:

  • 5% transaction fee

  • 0.2 $ listing fee for each item

  • Etsy payment processing fee, which is between 3% and 4.5%.

  • Additional fees may incur for foreign currency payments

The latter accounts for the remaining 27.5% of sales and is made of fees generated by services provided to help sellers generate more sales and scale their business.

Despite currently processing payments from 36 countries, Etsy mainly operates in six countries (United States, United Kingdom, Canada, Germany, Australia, France), and obtains approximately 67% of its sales only from the United States. The acquisition of Reverb Inc., whose largest client base is located in Germany, helped the activity in that area. The goals for the future are focusing on the six core countries while evaluating possibilities for further expansions.

The company is listed at Nasdaq and, for the time being, has a market capitalization equal to 20.24 billion $ (at close: 27 November 2019). During the last twelve months, revenues have reached 1.38 billion, which is significantly higher YoY. Revenues for FY 2020 and FY 2021 are expected to be, respectively, around 1.62 and 1.91 billion $. According to Refinitiv’s Industries Analysis, among a group of 67 constituents, the total revenues (LTM) of the sector amount to approximately 503.4 billion $, which would imply a market share of 0.27% for ETSY Inc. However, the distribution of revenues is greatly skewed because of two outliers, namely Amazon.com, Inc. and JD.com Inc, which combined absorb almost 3/5 of the total. Thus, removing from the sample these two major companies, we should have a more informative statistic and, as matter of fact, the “adjusted” market share is now equal to 0.69%.

Industry trends and dynamics

Online retailing has been one of the most successful and profitable industry in the recent past. 2020 has been characterized by the pandemic situation of Coronavirus, which has led governments to impose several restrictions on in-store activities and physical mobility. As a result, there has been a massive increase in online shopping, as testified by an increase of revenues equal to 29% YoY. This had a strong impact also on Etsy, which has seen a great growth in its key metrics.

A list of peers, according to FT:


Ratios as of Q3 2020:

Analysing the ratios of Etsy as of the Q3 2020 report we can see that the company is financially healthy, and under several aspects better than the average within the consumer cyclicals industry. Although the valuation ratios are significantly higher than the industry average (72.31x P/E and EV/Revenue 11.98) we can see that these are somewhat motivated by healthy YoY growth and good margins as well as cash available on hand. Lastly, the Beta (volatility compared to the market) is slightly lower than the average of consumer cyclicals.


Etsy was already an interesting company with growing opportunities prior to this year. As previously stated, the company has shown good YoY growth, especially this more, most likely due to the pandemic boosting consumer cyclicals and online vendors stocks. Obviously, this has also caused a great movement in the financial market, where the firm’s prices skyrocketed to 140$ from 45$ per share, which means approximately an increase of 211% YTD. Also, Christmas season is going to start soon, which usually means a great period for retailing.

With this year being the most beneficial to the company, we can see an overall solid growth in the last couple of years, indicating a consolidation of Etsy's position in its industry and an increasing market share. Therefore, we expect the company to continue along this growth trend, at least in the near future, and our position is bullish in the short term.

Technical Analysis

We believe the best time frame for our put bull spread strategy is from around now to January 22 when the puts expire. We think this time frame will be the best option since this is a stock that is affected rather significantly by COVID-19 and vaccine news because of the company’s nature regarding online shopping.

Even though we are bullish on ETSY for 2021, the vaccine news and the uncertainty of the market further into 2021 makes strategies more unreliable and movement is less predictable. So, we believe this strategy is most reliable in this time frame. Furthermore, as of 03/12 the price is 155$ and the target price of Citi and others is 170-180 with the average target price being 165 so it a bit stretched according to analysts.


Huge resistance point was at $150 for Jan 22 puts however, as of 03/12 price of ETSY is 155$ with it currently being very overbought, broke ceiling on RSI and Bollinger Bands (just started a little correction).

Implied volatility is much lower than its 20-day historical volatility of 70, so future volatility is expected to be, on average, lower. But we think that, if the price continues to rise, volatility is going to increase because ETSY will be overstretched. Keeping these factors in mind, a trade with good chance of profitability would be: buy January 22 OTM put at strike 145, and sell January 22 put at strike 170.

The Play

Our play considers a Put Bull Spread on Etsy 22 Jan 2021 with strikes 145/170. This strategy briefly consists of buying a OTM put and selling an ITM put in order to have a positive delta on the strategy since we are bullish on the short term. Prices are updated on 03/12/2020.


Our bull spread consists in:

  • long OTM put with the lower strike  buy January 21 145 put at 8.4

  • short ITM put with the higher strike  sell January 21 170 put at 21.6

Both options have the same maturity.

P&L profile

To enter the strategy, at the same time, you pay for the long OTM put and get compensated for the ITM short put. This will be a financing strategy:

Financing price = pshort - plong In our case, the price is = 21.6 – 8.2 = 13.4 , which is also equal to our max potential profit

First let’s look at our break-even point at expiration. BEP = xshort - financing price = 170 - 13.4 = 156.6 At expiration, our trade will therefore be profitable if $ETSY is above 156.65. This represents a 1.23% increase from ETSY based on the 03/12/2020 closing price.

As mentioned, maximum profit will be 13.4 for every unit on bull spread. As you can see on the P&L plot, this maximum profit is realized when Etsy stock price reaches 170, the short put strike price. This represents a 9.8% increase from ETSY based on the 03/12/2020 closing price. Your potential return on investment is therefore of 100%.

On the other hand, maximum loss is equal to the max profit less the difference between strikes. Max loss = 21.6 – 8.2 -170 + 145 = -11.6 The maximum loss is 11.6 per unit of bull spreads. It is incurred if both options expire worthless, that is for a stock price below 145, the strike of the long put. Your potential max loss is therefore of 116 (86.6% of financing price).

You can see that maximum profit is higher than the absolute value of maximum loss: this is because we are considering non-symmetric strikes, with the upper strike farther than the lower from the ATM. This gives us a potential for a higher return if ETSY moves along our predictions.

We prefer to build our bull spread with put options since it is cheaper than building it with calls: indeed, based on previous quotes, building a call bull spread with the same strikes would be:

  • long ITM call with the lower strike  buy January 21 145 put at 18.45

  • short OTM call with the higher strike  sell January 21 170 call at 6.8

the price of the strategy would be:

clong - cshort = 6.8 – 18.45 = 11.65 = max potential loss

This is also defined as the maximum potential loss. So, your maximum loss will be -11.65 for every unit on bull spread. On the other hand, the maximum profit would be equal to the difference between the strike spread and the price of the strategy:

xshort – xlong +cshort -clong = 170 – 145 + 6.8 – 18.45 = 13.35

We therefore decided to go with a put bull spread since the max profit is higher than the call spread, and the max loss is smaller than the call spread.


This will be a delta positive strategy since Deltalong = -0.27 and Deltashort = -0.64. The bull spread delta will be at the beginning of the strategy:

Deltalong - Deltashort = -0.27 - (-0.64) = 0.37

This is a graph representation through time of the Delta of our bull spread strategy:

Gammalong = 0.167 and Gammashort = 0.196, so the bull spread Gamma will be slightly negative at the beginning of the strategy:

Gammalong – Gammashort = 0.167 - 0.196 = -0.029

This is a graph representation through time of the gamma of our bull spread strategy:

Specular to Gamma, here there is a graph representation through time of the Theta of our bull spread strategy:

Vegalong = 0.173 and Vegashort = 0.201, so the bull spread Vega will be slightly negative at the beginning of the strategy:

Vegalong - Vegashort = 0.173 - 0.201 = -0.028

This is a graph representation through time of the Vega of our bull spread strategy:


The bull put spread maximum loss is known prior to entering the strategy and you pocket the income at the onset. The advantage over a simple short put is the limited loss, which in this case is equal to 11.65. The advantages over a long call are numerous too: including a lower break-even point, cheaper cost of finance, and higher return % if the stock moves north of the BEP but not above our strike (where our gains become capped). Another non-negligible advantage is that the put bull spread strategy has a near-zero Vega and Gamma. That means your portfolio is less sensitive to volatility changes and strong movements. Since you hold a put and write a put, the volatility impacts are partially immunized at the beginning of the strategy.


The main shortcoming is obviously the capped gain (the necessary trade-off to small loss). Also, shorting a put exposes you to the risk of early assignment, especially during dividend periods or in-the-money. Even though it is unlikely, you must consider this when entering this strategy.