Investing in MicroStrategy (MSTR) can be seen as a proxy investment in the cryptocurrency market. This raises the question: why not invest directly in cryptocurrencies?
Despite the allure of direct investment, regulatory developments have shown that the crypto market carries unique structural risks beyond the typical fluctuations driven by fear and greed. Investing in MSTR stock can help to mitigate some of these concerns.
It is important to note that this is not an endorsement of cryptocurrencies or their proxies. The aim here is to explain the potential rationale behind investing in MicroStrategy. Beyond the regulatory environment, digital assets are vulnerable to hacks, scams, and even lost passwords.
While there are administrative risks associated with equities like MSTR stock, investors may find more comfort in betting on a tangible company rather than a blockchain asset.
This year, cryptos have performed well. As a result, MSTR stock has become a must-have security among market gamblers. Since the start of the year, the company has gained 242% in equity value. However, with such strong enthusiasm, it’s reasonable to wonder if most of the bullishness has been priced in. Two factors might add complexity to this concern. Firstly, MicroStrategy will release its latest earnings report this coming Wednesday. Any good news, combined with already strong support for cryptos, could send MSTR stock soaring higher. Secondly, the average implied volatility (IV) for the company’s options chain stands at 102.6%, indicating significant projected movement. If traders bet correctly, they could see substantial rewards in a short period of time. Leverage the unusual options of MSTR stock to your advantage. According to Barchart’s screener for unusual options activity on Friday, MSTR stock was one of the highlights.
In the financial markets, unusual options activity can signal significant shifts in investor sentiment. Take MicroStrategy (MSTR) as an example. The $255 call option expiring on November 1st saw an extraordinary volume of 17,587 contracts, with open interest at a mere 471 contracts. This indicates an extreme demand for this specific strike price.
Even more intriguing is the options flow data, which exclusively filters for large block transactions likely initiated by institutional or professional investors. Post-Friday close, the transaction size for the $255 call reached 15,850 contracts. This means that over 90% of the demand for this particular option originated from institutional players.
While it might be tempting to buy the $255 call and follow the ‘smart money,’ a more strategic approach could be to consider selling this call option as part of a bull call spread. By doing so, the credit earned from the sale can be used to offset some of the debit associated with a lower-priced call option.
In the context of unusual options activity, leveraging the high demand for the $255 call option in MicroStrategy (MSTR) presents a unique opportunity for a high-risk wager. By engaging in a call spread, we can capitalize on the premium associated with this popular option, despite the inherent cap on our upside reward.
The first consideration is that the spread provides a discount on the call option, which effectively lowers the threshold to profitability. Additionally, the short time to expiration minimizes the penalty of capping our upside potential, making it a more attractive strategy.
Secondly, the massive demand for the $255 call suggests that the selling price will be significantly higher than usual. This makes involving the hottest call in the market a prudent choice for those willing to take on the risk.
For those looking to place a bet using bull call spreads with a $255 short (sold) leg, it’s important to note that most require a substantial capital investment. A quick calculation can help determine the feasibility of such a strategy.
In the world of high-risk investments, MicroStrategy (MSTR) offers a unique opportunity for those willing to leverage unusual options activity. For instance, the most expensive spread, the 200C/255C, requires a net debit of $3,245. Although the breakeven price of $232.45 is below Friday’s closing price of $234.34, a sour trade could lead to significant losses.
On the other hand, the cheaper spread, 252.50C/255C, is an appealing option costing only $100 for the potential to earn $150. However, the breakeven threshold is $253.50, which is an 8.2% increase from Friday’s close. Is this bet too risky? Stochastic analysis suggests not. For the Nov. 1 options chain, the implied volatility (IV) stands at 93.3%. By multiplying this figure by the current share price and applying the time decay adjustment (the square root of the days left to expiration divided by 365 days), we arrive at a product of $29.53. Assuming a bullish trajectory, the market anticipates MSTR stock could reach up to $263.Following earnings, it’s crucial to consider unusual options activity in MicroStrategy (MSTR). Projections, whether based on Implied Volatility (IV) or other mechanisms, can sometimes be inaccurate.
However, the market suggests a non-zero probability that MSTR stock could surpass the $255 short leg, indicating potential for a high-risk wager.
Investors might find value in the cheapest condors, as the market anticipates enough momentum for MSTR to exceed expectations, making this strategy not as foolish as it may initially appear.
