MSTR HEDGE / Covered Call Breakdown (Patreon)

Hi team, I had a lot of questions on this trade today but it's my bread and butter magic sauce. I've been doing for 35 years. Anyhow, I also forgot to mention when I was writing up the trade in a real hurry to get it out to you as quickly as possible, once I got everything filled was I also use the profit taking model on this one and here is my view of it. So it was https://www.investanswers.io/arb-cloud and IADSS MR used today

This covered call strategy on MicroStrategy (MSTR) can be broken down as follows:

Trade Structure

• Stock Position: I have a large position in MSTR this could be owning shares or in the money calls. Stock price at time of Call Sale was between $188-$191

• Option Sold: $200 strike call options

• Premium Received: $15 per share

• Expiration: 25 days

Key Points

• Upside Potential: The stock needs to rise 14.4% for the calls to be exercised.

• Maximum Profit: If MSTR reaches $200 or above, the total profit would be:

  • Stock appreciation: If stock goes to 215 - I will buy the calls I sold back for same price I paid for them. By this time time value will shrink to Zero.

  • Option premium: $15 - if MSTR stays at $200 or lower I pocket the $15 per Contract. 500 contracts = 500 * 100 * 15 = $750,000

  • MSTR stock needs to rise 14.4% in 25 days

• Downside Protection: The $15 premium provides a buffer, effectively lowering the break-even point to $173-$176. Remember my original Synthetic Longs on MSTR only cost $9 - so this call alone will nearly for that initial trade twice.

• Risk Management:

  • Reduces exposure to MSTR, which currently represents 45% of the portfolio.

  • Provides a hedge against potential overvaluation indicated by the ARB CLOUD model ie MSTR has outrun BTC spot value.

• Opportunity Cost: Limits potential gains if MSTR rises significantly above $215 over the next 24 days.

Strategic Considerations

• Portfolio Rebalancing: The strategy aligns with the goal of reducing MSTR exposure and potentially rotating into TSLA.

• Market View: I acknowledge the possibility of continued upside in Bitcoin, which could drive MSTR higher. Note $200 is ATH when BTC was at 74K ie BTC was 17.4% higher than it is now and MSTR was still only at $200 and there is even more dilution since then!!!!

• Premium Quality: I consider the premium "FANTASTIC" for a 25-day expiration, indicating a favorable risk-reward ratio.

Potential Outcomes

• MSTR stays below $200: Keep premium, maintain MSTR position

• MSTR above $200: Shares called away, max profit achieved - but I would rebuy back the call option if MSTR goes to $215.

• MSTR drops: Premium offsets some losses, provides hedge

This strategy balances the desire to capitalize on potential upside while managing risk and reducing portfolio concentration in MSTR.

I forgot to mention PROFIT TAKING MODEL was also used here.