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MSTR covered calls strategy example, courtesy of chatgpt
223 sats \ 6 comments \ @Bell_curve 5 Apr Stacker_Stocks

As of April 5, 2025, MicroStrategy (MSTR) is trading at approximately $293.61 per share. citeturn0search2

Let's walk through a live example of implementing a covered call strategy with MSTR, incorporating current market data.

Scenario:

  • Current Position: You own 100 shares of MSTR at $293.61 each.
  • Market Outlook: You anticipate MSTR will remain stable or experience modest gains over the next month.

Action:

  • Sell a Call Option:
    • Strike Price: $320 (approximately 9% above the current price)
    • Expiration Date: May 16, 2025 (approximately 6 weeks out)
    • Premium Received: Let's assume the premium for this option is $15 per share, totaling $1,500 for the contract (since each option contract covers 100 shares).

Potential Outcomes:

  1. MSTR Closes Below $320 on Expiration:
    • The call option expires worthless.
    • You retain your 100 MSTR shares.
    • You keep the $1,500 premium as profit.
  2. MSTR Closes Above $320 on Expiration:
    • The call option is exercised, and you sell your 100 shares at $320 each.
    • You realize a capital gain of $26.39 per share ($320 - $293.61), totaling $2,639.
    • Including the $1,500 premium, your total profit is $4,139.
    • However, if MSTR's price exceeds $320, you forgo any additional gains above this price.

Considerations:

  • Income Generation: The $1,500 premium provides immediate income, offering a buffer against potential declines in MSTR's stock price.
  • Limited Upside: Your profit is capped at the strike price plus the premium received. If MSTR's stock surges significantly, your gains are limited to the strike price.
  • Downside Risk: While the premium offers some protection, if MSTR's stock price drops substantially, you could incur losses on your stock holdings, offset only partially by the premium received.

Implementing a covered call strategy can be an effective way to generate additional income from your stock holdings, especially in a neutral to slightly bullish market environment. However, it's essential to be aware of the trade-offs, particularly the limitation on potential upside gains and the risks if the stock price declines.

Before proceeding, consider consulting with a financial advisor to ensure this strategy aligns with your investment objectives and risk tolerance.

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74 sats \ 2 replies \ @StackerJack 5 Apr

Solid example, really lays out the mechanics of a covered call. The capped upside is definitely a key point; it’s all about balancing the income from the premium with the trade-off on potential gains. If you’re not expecting MSTR to go on a tear above $320, this could be a nice way to generate income while holding your position.

Also, love the BTC equity analogy! You can essentially use that same strategy with puts—lock in some premiums and reduce your exposure to downside risk. Of course, with the right strike and timing, puts can also work as a bit of a hedge, giving you more flexibility if the market swings the other way.

At the end of the day, covered calls are a great tool for generating passive income, but you do need to watch that upside ceiling. Always comes down to the market outlook and your risk tolerance.

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79 sats \ 1 reply \ @Bell_curve OP 5 Apr

I don't have the stomach to short MSTR

I would rather buy puts

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10 sats \ 0 replies \ @StackerJack 5 Apr

Fair enough, I’m not keen on shorting MSTR either. Buying puts feels safer to me—you can still play the downside without risking the same kind of chaos as a short position. Plus, if you’re just looking to hedge or catch a smaller dip, puts are a good way to get that exposure while keeping a clear risk limit. Definitely all about balancing the risk with the potential gain.

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10 sats \ 2 replies \ @BlokchainB 5 Apr

Yup. Using a BTC equity to generate cash. You can do the same with puts as well.

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82 sats \ 0 replies \ @Bell_curve OP 5 Apr

I don't have the stomach for shorting mstr

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72 sats \ 0 replies \ @Bell_curve OP 5 Apr

here is the put example from chatgpt...

A covered put is an options strategy employed when an investor has a bearish outlook on a stock. It involves two components:

  1. Short Selling the Stock: Selling shares of the stock that you do not own, with the intention of buying them back later at a lower price.
  2. Writing (Selling) a Put Option: Selling a put option on the same stock, which obligates you to buy the stock at the option's strike price if the option is exercised by the buyer.

This strategy aims to generate additional income through the premium received from selling the put option, which can help offset potential losses if the stock's price increases.

📉 Example with MicroStrategy Inc. (MSTR)📉 Example with MicroStrategy Inc. (MSTR)

As of April 5, 2025, MSTR is trading at approximately $293.61 per share

Scenario:

  • **Short Position:**You short 100 shares of MSTR at $293.61 per share, anticipating a decline in its price
  • Sell a Put Option:
    • **Strike Price:**$28
    • **Expiration Date:**One month from no
    • **Premium Received:**Assume $10 per share, totaling $1,000 for the contract (since each option contract covers 100 shares)

🔄 Potential Outcomes:🔄 Potential Outcomes:

  1. MSTR Closes Below $280 at Expiration: The put option is exercised; you're obligated to buy 100 shares at $280 eac. Your profit from the short sale is: ($293.61 - $280) × 100 = $1,36. Including the $1,000 premium received, your total profit is $2,36.
  2. MSTR Closes Between $280 and $293.61 at Expiration: The put option expires worthless; you keep the $1,000 premiu. Your profit from the short sale depends on the closing price. For example, if it closes at $28:
    • Short sale profit: ($293.61 - $285) × 100 = $861.
    • Total profit: $861 + $1,000 = $1,861.
  3. MSTR Closes Above $293.61 at Expiration: The put option expires worthless; you keep the $1,000 premiu. However, your short position incurs a loss. For example, if it closes at $30:
    • Short sale loss: ($300 - $293.61) × 100 = $639.
    • Total outcome: $1,000 (premium) - $639 = $361 profit. The risk is unlimited if the stock price continues to rise significantl.

⚠️ Considerations:⚠️ Considerations:

  • *Unlimited Risk: The primary risk of a covered put is the potential for unlimited losses if the stock's price rises substantially. Unlike covered calls, where the maximum loss is limited to the stock's purchase price minus the premium received, covered puts expose you to significant risk if the stock appreciate.
  • *Margin Requirements: Short selling requires a margin account and may involve significant margin requirements. Ensure you understand these obligations before proceedin.
  • *Market Outlook: This strategy is suitable for investors with a strong bearish sentiment on the stock. If your outlook is incorrect and the stock price rises, losses can accumulate quickl.

📚 Further Reading:📚 Further Reading:

For a more in-depth understanding of covered puts and their applications, consider exploring these resources:

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Implementing a covered put strategy can be complex and carries significant risk, especially with volatile stocks like MSR. It's crucial to thoroughly understand the mechanics and risks involved. Consulting with a financial advisor or options trading professional is highly recommended to ensure this strategy aligns with your investment goals and risk tolerance.

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