As frequent readers know, I also have a small position in a Bitcoin ETF and a position in MSTR—Miscrostrategy Inc. It’s a leveraged play on Bitcoin, and I’m up considerably on my position. All good.
Since May 1, Microstrategy has increased from just over $1,000 to close at $1,684.84 on May 24, 2024. A 67% gain in 23 trading days is an excellent little trade.
Of course, the alternate perspective is that since March 27, when MSTR peaked at just under $2,000 per share, Microstrategy has been down 16%. Your entry point matters.
Since May 1 Bitcoin is up around 23%, so MSTR’s 67% gain shows that Microstrategy is highly levered to the price of Bitcoin, both up and down. Bitcoin is “only” down 6% since the peak in March.
Due to this leverage and volatility, I thought I would be smart and sell short-dated covered calls against MSTR. The time value premium can easily be $30 or more per share, so the theory is simple: cover on Monday, and if by Friday MSTR is up less than the premium, the options expire worthless.
Great.
Unfortunately, over the month of May, MSTR has rocketed upward, so each week I have to buy-back the calls, often at a loss, and then sell next week’s calls.
During March and April the strategy worked great, because MSTR was falling, so the options expired worthless.
The disaster happened on May 14, when I sold the options expiring on May 17, strike price $1,400, for $10.50. I ended up repurchasing them for $84, for a loss of $73.50. Oops.
I’m currently holding the May 31 expiry, strike $1,550, so I’m significantly under water at the moment.
My plan is to wait for a down day, buy to close, and then write new options with a high enough strike price that they will eventually expire worthless.
The strategy has not worked, so far, but we’ll play it out.
The good news, of course, is that I still hold the underlying shares, which have done great, so overall it’s been quite profitable.
Tune in next week to find out if I’m still “in the game.”