MicroStrategy (MSTR), the largest publicly traded holder of Bitcoin, is experiencing unprecedented volatility, now exceeding that of Bitcoin by more than 2.5 times. While this elevated volatility may raise concerns for some market participants, it also presents lucrative opportunities for options traders.
MSTR’s Volatility Surge
MicroStrategy’s 30-day implied volatility (IV) has surged to 140.86%, a stark contrast to Bitcoin’s IV of 55.65%. This means MSTR shares are undergoing more drastic price swings compared to Bitcoin, which has attracted increased interest from investors looking to gain exposure to Bitcoin’s price movements without directly holding the cryptocurrency. As a result, MSTR’s stock has surged 500% this year, far outpacing Bitcoin’s 124% rise.
Given that MicroStrategy holds over 380,000 BTC, its stock price is highly correlated with Bitcoin’s market performance, and this growing volatility is opening up new avenues for traders to profit from MSTR’s price fluctuations.
Profit Potential from Increased Options Premiums
The spike in implied volatility means that options premiums are higher, which benefits traders using options strategies. Implied volatility affects the cost of options, with higher IV leading to higher premiums for options contracts. These contracts grant traders the right, but not the obligation, to buy or sell an asset at a predetermined price in the future.
When IV rises, savvy traders can capitalize by selling call and put options. The higher premiums provide a greater income potential from options trading. For those holding MSTR shares, writing covered calls can be a strategic way to generate additional income, as the higher volatility increases the premium income from selling options.
Covered Calls: A Strategy to Maximize Returns
The covered call strategy involves selling call options while holding the underlying asset—in this case, MSTR shares. This strategy allows traders to earn income from the premiums, but it comes with a cap on potential upside. While the trader receives income from the option premium, any significant price gains in MSTR are limited by the strike price of the calls sold.
With MSTR’s implied volatility being 2.5 times higher than Bitcoin’s, this strategy could result in higher returns compared to Bitcoin options. Traders have been quick to take advantage of this, with many seeing MSTR’s volatility as an opportunity to earn substantial premiums.
Risks of the Covered Call Strategy
Although the covered call strategy provides additional income, it also limits the potential for substantial gains if the price of MSTR rises significantly. If MSTR experiences a large rally, the trader will not benefit from those gains beyond the strike price of the options sold. For some, simply holding MSTR shares might be a better strategy, especially if they expect the stock to continue rising rapidly.
A Volatile Opportunity for Options Traders
MicroStrategy’s higher-than-Bitcoin volatility opens up lucrative opportunities for options traders, particularly those utilizing covered call strategies. These traders can earn higher premiums from the increased volatility of MSTR shares. However, the trade-off is that the strategy caps the upside potential, meaning that traders may miss out on substantial price surges.
For experienced options traders who understand the risks and rewards of volatile assets, MicroStrategy’s stock offers a potentially profitable avenue. However, it’s essential to weigh the risks carefully and consider whether the covered call strategy aligns with one’s overall investment goals.
