Investing in MicroStrategy (MSTR) is akin to investing indirectly in the cryptocurrency market. This raises the question: why not invest directly in cryptocurrencies? Regulatory developments have shown that investing in this market comes with unique structural risks beyond the usual fluctuations of fear and greed. However, investing in MSTR stock can help mitigate some of these concerns.
I am not endorsing cryptocurrencies or their proxies; I am merely explaining the potential incentive behind MicroStrategy. Beyond the regulatory environment, digital assets are susceptible to hacks, scams, and lost passwords. While there are administrative risks involved with equities like MSTR stock, investors might find more comfort in betting on an actual company rather than a blockchain asset.
Most importantly, under the context of unusual options activity, the massive demand associated with the $255 call suggests that the price we’ll get for selling it is much higher than it normally would be. So, if we’re going to engage a call spread, involving the hottest call in the market could be quite prudent.
Using some quick math to place a bet, of the available bull call spreads with a $255 short (sold) leg, most of them require a significant amount of capital. For example, the most expensive spread — the 200C/255C — requires a net debit of $3,245. Yes, the breakeven price ($232.45) is below Friday’s closing price of $234.34. Still, that’s a ton of money that could evaporate if the trade goes sour. On the other hand, the cheapest spread of 252.50C/255C only costs $100 for the chance to earn $150. That sounds appealing but the breakeven threshold is $253.50. That’s up about 8.2% from Friday’s close. Is that too risky of a bet? Based on stochastic analysis, maybe not. For the Nov. 1 options chain, the IV stands at 93.3%. Multiplying this figure by the current share price and the time decay adjustment (the square root of the days left to expiration divided by 365 days) gives us a product of $29.53. If we’re assuming a bullish trajectory, the market believes MSTR stock could hit up to $263.87 following earnings. To be sure, projections — whether established by IV or by some other mechanism — can always be wrong. However, the market anticipates a non-zero probability of there being enough gas in the tank for MSTR stock to exceed the $255 short leg. So, grabbing the cheapest of these condors might not be as silly as it looks.
