Leverage Bitcoin! How to Go Long on MSTR Using Options?

MSTR’s Recent Developments

On Monday, Microstrategy ( $MicroStrategy(MSTR)$ ), a company nominally a software manufacturer but effectively a leveraged Bitcoin investor, successfully met all the criteria to be included in the Nasdaq 100 Index. This development sent shockwaves through the global capital markets, particularly among investors tracking the Nasdaq Index, as they are now compelled to allocate to this highly controversial Bitcoin asset.

Michael Saylor, the co-founder and executive chairman of Microstrategy, has even grander ambitions. He predicts that by 2025, the company’s assets could reach $50 billion, opening the door to inclusion in the S&P 500 Index. Saylor stated that if Bitcoin rises another 20%, the company’s annual investment return could hit $10 billion, significantly boosting its competitiveness for the S&P 500.

According to the S&P Index criteria, companies must meet two main requirements:

1. Their market capitalization must rank among the top 100 in the U.S. stock market.

2. They must report positive earnings in the most recent quarter and for four consecutive quarters.

Microstrategy’s market cap has already reached $89 billion. Additionally, new accounting standards, which include Bitcoin investment gains in net income, could help the company meet the profitability criteria. These factors position MSTR for a potential S&P 500 inclusion, fueling market speculation about its future.

How to Go Long on MSTR with a Put Selling Strategy

While Microstrategy’s prospects may be promising, its high stock price volatility often makes investors hesitant to directly buy shares. In this case, selling put options (Put Selling) can provide a lower-risk way to go long on MSTR.

What is Put Selling?

Selling put options involves writing a contract for a specific strike price and receiving a premium as compensation. In a bullish scenario, this strategy has two primary benefits:

1. Lower Entry Cost: If the stock price falls below the strike price, you can buy the stock at a discount while keeping the premium as additional income.

2. Stable Income: If the stock price remains above the strike price, the option expires worthless, and you keep the premium as profit.

MSTR Option Strategy

Assume the current stock price of MSTR is $358. You could implement the following trade:

• Sell a $340 put option expiring on January 29 for a premium of $3,296

  

  • Scenario 1: Stock price > $340
    The option buyer does not exercise the option, allowing you to retain the $3,296 premium, translating to a return of approximately 9.7% ($3,296 / $34,000).

  • Scenario 2: Stock price < $340
    You would be obligated to purchase MSTR stock at $340 per share. However, after accounting for the premium received, your effective cost per share would drop to $306.04 ($340 - $32.96), giving you a 14.5% discount compared to the current price.

Advantages and Risks of the Strategy

• Advantages

  1. Lower Investment Threshold: Even if MSTR’s stock price declines, you can acquire a quality asset at a discount.

  2. Capitalizing on Volatility: MSTR’s high volatility inflates option premiums, leading to higher income from selling puts.

• Risks

  1. Downside Risk: A significant decline in MSTR’s stock price could still result in losses if you are required to hold the shares.

  2. Opportunity Cost: A sharp stock price increase means missing out on higher capital gains.

Who Should Use This Strategy?

This strategy is particularly suitable for:

1. Investors who are bullish on MSTR’s long-term prospects but prefer a safer entry point.

2. Investors with a higher risk tolerance who are willing to accept potential downside risk.

Conclusion

With Microstrategy’s inclusion in the Nasdaq 100 Index, its market cap and influence have opened up new opportunities for investors. For those optimistic about MSTR’s long-term value but wary of its high stock price volatility, selling put options offers a balanced approach with both income potential and a margin of safety. As Bitcoin prices continue to rise and speculation around S&P 500 inclusion builds, this strategy could be a powerful tool to capitalize on MSTR’s future growth.