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10 sats \ 2 replies \ @BlokchainB 5 Apr \ on: MSTR covered calls strategy example, courtesy of chatgpt Stacker_Stocks
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:๎ˆ†
  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.๎ˆ†
  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.๎ˆ†
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.๎ˆ†

๐Ÿ“‰ Example with MicroStrategy Inc. (MSTR)

๎ˆƒAs of April 5, 2025, MSTR is trading at approximately $293.61 per share๎ˆ„๎ˆ†
Scenario:
  • **Short Position:**๎ˆƒYou short 100 shares of MSTR at $293.61 per share, anticipating a decline in its price๎ˆ„๎ˆ†
  • Sell a Put Option:
    • **Strike Price:**๎ˆƒ$28๎ˆ„๎ˆ†
    • **Expiration Date:**๎ˆƒOne month from no๎ˆ„๎ˆ†
    • **Premium Received:**๎ˆƒAssume $10 per share, totaling $1,000 for the contract (since each option contract covers 100 shares)๎ˆ„๎ˆ†

๐Ÿ”„ Potential Outcomes:

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

โš ๏ธ Considerations:

  • *Unlimited Risk: ๎ˆƒThe 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.๎ˆ„๎ˆ†
  • *Margin Requirements: ๎ˆƒShort selling requires a margin account and may involve significant margin requirements. Ensure you understand these obligations before proceedin.๎ˆ„๎ˆ†
  • *Market Outlook: ๎ˆƒThis 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.๎ˆ„๎ˆ†

๐Ÿ“š Further Reading:

For a more in-depth understanding of covered puts and their applications, consider exploring these resources:
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๎ˆƒImplementing a covered put strategy can be complex and carries significant risk, especially with volatile stocks like MSR.๎ˆ„ 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.๎ˆ†
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