I have a long history of doing covered-writes on MSTR—Microstrategy Inc. The concept is simple: I sell out-of-the-money call options, and on their expiration date, they expire, and I pocket the premium.
Simple.
Except it’s not so simple with Microstrategy.
On Tuesday, August 20, with MSTR trading at around $140, I sold calls with a strike price of $148, expiring on August 23. My reasoning was simple: What were the chances that in less than four trading days, MSTR would go up by over 6%? That’s a big increase in four days.
Well, you know what happened. Fed Chair Jerome Powell said, “I’m lowering interest rates to increase liquidity,” and we were off to the races. Bitcoin was up almost 6% on the day, and MSTR, being a leverage play, closed the day at $150.01, up just over 12% on the day and up over 7% since my covering.
I could have bought the calls back earlier in the day for a 50% profit, but I didn’t, and I was stuck with a big loss.
(Of course I still own the underlying stock, so I didn’t have a net loss, but my gains were not as large as they otherwise would have been if I had just held and done nothing else).
As I write this Bitcoin is now comfortably above $63,000 USD, which is a reasonably significant resistance level. We’ll see if it holds.
For now, I hope I learn my lesson and just hold.
But probably not.
Have a good week.
Inflation is Always and Everywhere a Monetary Phenomenon
by JDH on August 31, 2024
To paraphrase Milton Friedman, if you print a lot of money, inflation goes up.
The money supply (M2) growth in Canada peaked at 14.3% in February 2021 and steadily dropped until it hit a growth rate of “only” 1.6% in June 2023. Since then, M2 has increased, and in June 2024, the annual growth rate hit 4.2%, the highest growth rate in 21 months.
But here’s the thing: money printing does not immediately lead to inflation.
There’s a time lag of around 16 months, give or take.
If these trends continue, CPI will continue to fall, and could hit zero by early 2025. However, as you can see from the blue line, M2 has already started to increase.
The brakes were on, but now they are pushing the gas pedal, so higher inflation will return in late 2025 and beyond.
The play, then, is to buy bonds now to take advantage of lower interest (to “quell” inflation) but those bonds are not a long term hold. You hold for six months, perhaps a year, pocket the interest, and then make a capital gain when you sell.
And as the increase in the money supply kicks in, liquidity rises, and assets (like gold and Bitcoin) will be good investments.
Or not.
We shall see.
Enjoy the long holiday weekend, the fall will be interesting.