ETSY Stock Volatility Sets the Stage for ‘Blackjack-Style’ Options Trade

After experiencing a significant surge in market value, e-commerce platform Etsy (ETSY)—known for its focus on handmade, vintage items, and craft supplies—has been in need of a positive catalyst. Over the past month, ETSY shares have declined by nearly 15%, bringing the stock to more than 5% below break-even for the year.

Etsy recently received a modest boost with a price target increase from Wells Fargo, which raised its estimate to $41 per share. While the firm maintained its Underweight rating, analysts noted that stabilizing comparable sales are making them more inclined to adopt a more constructive outlook.

That said, skepticism still surrounds ETSY. Wells Fargo remains cautious due to continued year-over-year declines in gross merchandise sales (GMS) and believes much of the expected growth is already priced into the stock, making the investment case less compelling at current levels.

However, I would challenge that view based on quantitative indicators, particularly market breadth data. For risk-tolerant investors exploring the options market, ETSY may present an intriguing speculative opportunity worth examining more closely.

Using a ‘Blackjack’ Strategy with ETSY Stock

Although market participants commonly turn to fundamental data to guide their decision-making process, this approach is problematic for options traders due to its lack of specificity. Traders in the derivatives arena require a thesis that covers not only the magnitude component (y-axis) but also the time element (x-axis). Therefore, a statistical approach is necessary.

However, statistical analysis in the financial markets is a tricky proposition, in large part because the primary measurement metric — the share price — is a continuous (unbounded) signal. Therefore, probabilities calculated on such a dataset are derivative in nature: outcome odds across the entire dataset’s distribution.

What most traders are looking for are conditional probabilities — the odds of an outcome across a specific subset of the data. It’s here that the card-counting process of professional blackjack players comes in handy.

In card counting, low-value cards (2 through 6) are assigned a value of +1. Neutral cards (7 through 9) are assigned a value of 0. Finally, high-value cards (10, Ace, face-value cards) are assigned a value of -1. The idea is that players keep a running total in their heads. When the odds favor them (when there are more high-value cards in play), the players raise their bets.

While the edge is slight, the most astute and disciplined players can make a good living. Part of the reason why card counting is so attractive is that the process is intuitive: you bet more when the odds favor you and you minimize your bets when they do not. Therefore, the decision driver is math, not emotions.

Options traders can approach the market in a similar manner. However, the common mistake is attempting to apply conditional probabilities without first discretizing the dataset.

You’ll notice that in card counting, players don’t count each individual card — that would be too technically challenging. Instead, they discretize the cards into one of three categories: positive, neutral, and negative. These categories are much easier to assess and build probabilistic logic from than individual cards.

To mimic this process for the stock market, I convert price action into market breadth or sequences of accumulative and distributive sessions. In this way, I can segregate demand profiles into distinct, discrete behavioral states, which then serve as the backbone for past analogs to extract probabilistic insights.

Laying the Groundwork to Identify a Compelling Call Spread

Using the principles mentioned above, the past two months of ETSY stock can be converted as a “6-4-U” sequence: six up weeks, four down weeks, with a positive trajectory across the 10-week period. Admittedly, this conversion process compresses ETSY’s magnitude dynamism into a simple binary code. However, the benefit is that we now have a series of discrete behavioral profiles that can be categorized and quantified.

For example, through the conversion process, we can identify that the 6-4-U sequence has flashed 65 times since January 2019. Furthermore, in 58.46% of cases, the price action for the following week (corresponding to the business week beginning June 30) exhibits an upside, with a median return of 4.54%.

ETSY’s 10-week summary and future forecast. Credit: Joshua Enomoto

On Friday, ETSY stock closed at $50.64. Should the implications of the aforementioned sequence pan out, the security could hit $52.94 (possibly up to $53) within a week or two. What makes this setup so intriguing is the implied shift in sentiment regime. As a baseline, the chance that ETSY will rise higher on any given week is only 51.33%. Therefore, the 6-4-U incentivizes a debit-based options strategy.

Those who want to take the boldest risk may consider the 52/53 bull call spread expiring July 18. This transaction involves buying the $52 call and simultaneously selling the $53 call, for a net debit paid of $34 (the most that can be lost in the trade). If ETSY stock rises through the short strike price of $53 at expiration, the maximum reward is $66, a payout of over 194%.

For aggressive traders seeking a more probabilistically sensible trade, they may consider the 51/52 bull spread, which also expires on July 18. Here, ETSY stock only needs to hit $52 at expiration. However, the payout is much lower at 117.39%.

Quick Earnings Reminder

Etsy has taken a step backward in terms of earnings in recent quarters. Following a solid run of six consecutive positive quarters, the stock slumped to an EPS loss of $0.49 in Q1 2025, according to TipRanks data. Moreover, with future revenue growth projected to be sluggish at 0.94%, while the sector median hovers at 3%, the fundamental picture for ETSY is somewhat bearish. The next earnings call is scheduled for the last week of July, where a positive surprise is an outside possibility.

Is ETSY Stock a Buy, Hold, or Sell?

Turning to Wall Street, ETSY stock has a Hold consensus rating based on eight Buys, 13 Holds, and five Sell ratings over the past three months. The average ETSY price target is $48.40, implying 4% downside risk.

See more ETSY analyst ratings

Harnessing Mathematics to Take Advantage of ETSY Stock

With the recent volatility in e-commerce specialist Etsy, intrepid options traders may have an opportunity for upside. While the experts may be cautious about ETSY stock, the deck reveals a higher-than-average probability of a sentiment reversal. For those who prefer trading equities based on numbers rather than emotions, ETSY could be an intriguing bullish idea.