In January 2025, I started an experiment. In a non-registered account, I deposited cash and purchased 200 shares of MSTR—Microstrategy Inc. (now Strategy Inc., but the ticker symbol has yet to change). The cost of those shares was $335.56. On Thursday, April 17, 2025 (the markets were closed on Friday), MSTR closed at $317.31. So, if I were to sell my 200 shares at that price, I would lose $3,650.
I haven’t sold the shares, but that’s not the experiment.
The experiment is that I have been writing covered calls against those Strategy Inc. shares. As you know, an options contract is 100 shares, so with 200 shares, I can write two covered contracts against my underlying position of 200 shares.
The results, so far, are as follows:
I have done 10 pairs (selling to open, then buying to close), and my profit to date is $7,858.69. (I currently have one open position, the $320 call options expiring on April 25, so we’ll see where MSTR trades this week to see if that position closes at a profit or loss.)
To summarize: if I had simply held the stock, I would have lost $3,650, which isn’t surprising since MSTR has been in a downtrend this year:
The arrow shows you roughly where I bought my MSTR position, so obviously, the price has been down since then.
However, when a stock falls, call options lose value, so selling them and then buying them back later at a lower price is a good strategy (no pun intended).
This strategy will work until it doesn’t. If MSTR breaks the downtrend and goes on a big upswing, I either lose my shares or buy them back at a big loss, so in a bull market, it’s more profitable to hold the shares.
As you can see from the chart above, my general process is as follows:
- Wait until MSTR has an “up” day or two. Since the beginning of the year, the longest streak of green daily candles is five, and two is more typical, so two green days are a good time to do a covered write, because the chances of a down day tomorrow increase.
- However, you can’t predict the market, so I always prefer to stay covered. Sometimes you win, sometimes you lose.
- I sell calls that are out of the money.
- I sell them one or two weeks out.
- When you have a profit of 75%, take it.
The farther out you go, the larger the premium, but most of the premium erosion happens in the few days before expiry, so one to two weeks seems about right.
Somewhere between 3% and 10% out of the money seems about right, so if MSTR trades at $300, I’m selling the $310, $315 or $320 that expires in a week or two.
If I sell the options for $12 and a few days before expiry they are trading in the $2 to $5 range, I buy them back and book the profit. There’s no point in getting greedy because tomorrow MSTR could shoot upward, and you’ve lost your profit. Take the 75% profit; don’t hold out for 100%.
Of course, you can buy ETFS like MSTY that do this for you, but what’s the fun in that?
I will refine the process and see if I can squeeze out a few more bucks of profit.
That’s the update. More updates next week.
The MSTR Covered Call Option Experiment Results – So Far
by JDH on April 19, 2025
In January 2025, I started an experiment. In a non-registered account, I deposited cash and purchased 200 shares of MSTR—Microstrategy Inc. (now Strategy Inc., but the ticker symbol has yet to change). The cost of those shares was $335.56. On Thursday, April 17, 2025 (the markets were closed on Friday), MSTR closed at $317.31. So, if I were to sell my 200 shares at that price, I would lose $3,650.
I haven’t sold the shares, but that’s not the experiment.
The experiment is that I have been writing covered calls against those Strategy Inc. shares. As you know, an options contract is 100 shares, so with 200 shares, I can write two covered contracts against my underlying position of 200 shares.
The results, so far, are as follows:
I have done 10 pairs (selling to open, then buying to close), and my profit to date is $7,858.69. (I currently have one open position, the $320 call options expiring on April 25, so we’ll see where MSTR trades this week to see if that position closes at a profit or loss.)
To summarize: if I had simply held the stock, I would have lost $3,650, which isn’t surprising since MSTR has been in a downtrend this year:
The arrow shows you roughly where I bought my MSTR position, so obviously, the price has been down since then.
However, when a stock falls, call options lose value, so selling them and then buying them back later at a lower price is a good strategy (no pun intended).
This strategy will work until it doesn’t. If MSTR breaks the downtrend and goes on a big upswing, I either lose my shares or buy them back at a big loss, so in a bull market, it’s more profitable to hold the shares.
As you can see from the chart above, my general process is as follows:
The farther out you go, the larger the premium, but most of the premium erosion happens in the few days before expiry, so one to two weeks seems about right.
Somewhere between 3% and 10% out of the money seems about right, so if MSTR trades at $300, I’m selling the $310, $315 or $320 that expires in a week or two.
If I sell the options for $12 and a few days before expiry they are trading in the $2 to $5 range, I buy them back and book the profit. There’s no point in getting greedy because tomorrow MSTR could shoot upward, and you’ve lost your profit. Take the 75% profit; don’t hold out for 100%.
Of course, you can buy ETFS like MSTY that do this for you, but what’s the fun in that?
I will refine the process and see if I can squeeze out a few more bucks of profit.
That’s the update. More updates next week.