As discussed in previous posts, I own shares in MSTR—Microstrategy Inc. (now Strategy Inc., but the ticker symbol has yet to change). To enhance my returns, I sell out-of-the-money covered calls, assuming that, as with all call options, the time premium erodes, and I can pocket that premium.
That strategy works great when the underlying stock trades sideways or up slightly. This week, Strategy Inc. was up around 7%, which isn’t sideways, so my options were well into the money, so I had a choice:
- Do nothing, and have my shares called away, or
- “Buy to Close” the options, and then sell new options a week or two into the future to recover some of my losses.
I chose option B, but it was a losing proposition.
On April 22, I sold the $345 calls, expiring May 2, for $16. However, on April 30, I repurchased them for $39, resulting in a loss of $23 per option. I then sold the May 9 options, strike price $385, for $14 (so on those two trades, I’m down $23, less the $14 I recovered). Of course, the $14 is only a profit if MSTR trades below $385 on May 9. It closed on Friday at $394, so the trade is not looking good.
Of course, there is one “saving grace” in this whole mess: I still own the shares, which I purchased on January 9, 2025, for around $335. They are now trading at $394, so my shares are up significantly. If I were to close out my option position now, I would approximately break even on the options, but I’m up 17% on the shares, which is where I would be if I had done no options trades.
So, it would appear that the correct option was to buy the shares and hold, or stop covering as soon as MSTR ended its consolidation phase, but who knew?
That’s the update, more next week.
The MSTR Covered Call Strategy Didn’t Work This Week
by JDH on May 3, 2025
As discussed in previous posts, I own shares in MSTR—Microstrategy Inc. (now Strategy Inc., but the ticker symbol has yet to change). To enhance my returns, I sell out-of-the-money covered calls, assuming that, as with all call options, the time premium erodes, and I can pocket that premium.
That strategy works great when the underlying stock trades sideways or up slightly. This week, Strategy Inc. was up around 7%, which isn’t sideways, so my options were well into the money, so I had a choice:
I chose option B, but it was a losing proposition.
On April 22, I sold the $345 calls, expiring May 2, for $16. However, on April 30, I repurchased them for $39, resulting in a loss of $23 per option. I then sold the May 9 options, strike price $385, for $14 (so on those two trades, I’m down $23, less the $14 I recovered). Of course, the $14 is only a profit if MSTR trades below $385 on May 9. It closed on Friday at $394, so the trade is not looking good.
Of course, there is one “saving grace” in this whole mess: I still own the shares, which I purchased on January 9, 2025, for around $335. They are now trading at $394, so my shares are up significantly. If I were to close out my option position now, I would approximately break even on the options, but I’m up 17% on the shares, which is where I would be if I had done no options trades.
So, it would appear that the correct option was to buy the shares and hold, or stop covering as soon as MSTR ended its consolidation phase, but who knew?
That’s the update, more next week.