'Derivative Stocks'

Updated: Feb 16, 2021

Not to be confused with derivatives (e.g., options), derivative stocks are what I call stocks which benefit from related trends in an equally or perhaps even more favourable way. Commonly they're known as satellite stocks.


Take MARA (Marathon Patent Group) for example. MARA is a company which mines Bitcoin and has a fixed cost assigned to mining 1 Bitcoin, as the company scales the cost of mining each Bitcoin decreases and each coin can be sold at the market price for profit (assuming market price > cost to min the bitcoin). Though MARA is a stock, their operations and economic viability clearly benefit from upwards trends in cryptocurrency and Bitcoin in particular.


If we compare the charts for MARA and BTC we can see movements are correlated. However, if you look at the numbers and growth you can see an investment in MARA would have returned more than the same investment in BTC.



MARA 1Y price chart at 1D intervals (left) vs BTC 1Y price chart at 1D intervals (right)


Scenario 1: An investment during the COVID crash on 12 March 2020:

12 March 2020 1 unit of MARA = USD 0.54

12 March 2020 1 unit of BTC = USD 5563.71

13 February 2021 1 unit of MARA = USD 38.46

13 February 2021 1 unit of BTC = USD 47,422.445


Return on investment.

MARA = (38.46-0.54)/0.54 = 7022%

BTC = (47,422.445-5563.71)/5563.71 = 752%


Scenario 2: An investment just before Bitcoin's Dec20/Jan21/Feb21 run on 11 December 2020.

11 December 2020 1 unit of MARA = USD 5.22

11 December 2020 1 unit of BTC = USD 18058.90

13 February 2021 1 unit of MARA = USD 38.46

13 February 2021 1 unit of BTC = USD 47,422.445


Return on investment.

MARA = (38.46-5.22)/5.22 = 637%

BTC = (47,422.445-18058.90)/18058.90 = 163%


This is just an illustration of why I hold MARA and that too at a much heavier weighting than BTC. MARA is in its growth phase and is starting to pick up in retail volume so if BTC rises I foresee MARA will follow but with a greater % growth.


Other derivative stocks are RIOT for crypto, and PLUG, BLNK for electric vehicles.


Let me know your thoughts, whether you have found any other derivative stocks and how they have performed against their main indices!

11 views0 comments