MicroStrategy (MSTR), the world’s largest publicly traded Bitcoin holder, is seeing a major surge in volatility, with its implied volatility (IV) now 2.5 times higher than that of Bitcoin. This increase in volatility presents new opportunities for options traders, but it also carries significant risks.
MSTR’s Volatility vs. Bitcoin
Currently, MicroStrategy’s 30-day implied volatility stands at 140.86%, significantly surpassing Bitcoin’s IV of 55.65%. This means that MSTR shares are experiencing larger price swings compared to Bitcoin, which could translate to greater income potential for options traders. MSTR’s stock has outperformed Bitcoin this year, rising 500%, compared to Bitcoin’s 124% increase.
This heightened volatility has drawn investors who seek exposure to Bitcoin without directly holding the cryptocurrency, driving up MSTR’s stock price. With more than 380,000 BTC in its treasury, MicroStrategy’s financial performance is closely linked to Bitcoin’s price movements.
Increased Premiums and Income Potential
The key effect of high implied volatility is the increase in premiums for options contracts. Implied volatility plays a crucial role in determining the price of options, which give investors the right (but not the obligation) to buy or sell an asset at a set price in the future.
When IV rises, options premiums also increase. This gives traders more potential income by selling call and put options. For investors holding MSTR shares, this volatility can be harnessed through covered call strategies, where they sell calls at strike prices above the current market price. In return, they receive premiums, which add extra income on top of their regular stock holdings.
The Covered Call Strategy: Potential Rewards and Risks
A covered call strategy involves holding the underlying asset—MSTR shares—and selling options contracts on that asset. This strategy can provide a steady stream of income from the premiums, especially when implied volatility is high. If the price of MSTR rises, traders can still profit from the increase, though the potential gains are capped by the strike price of the options.
With MSTR’s volatility at 2.5 times higher than Bitcoin’s, a covered call strategy could offer returns up to two and a half times greater than using Bitcoin options. Traders are already discussing ways to capitalize on MSTR’s higher volatility, with many viewing it as a potentially profitable trading opportunity.
However, there is a trade-off. The covered call strategy limits the upside potential because if MSTR’s price experiences a significant rally, traders who have sold calls will not fully benefit from the rise. In some cases, holding onto the asset without selling options could prove to be more profitable.
Final Thoughts: Is MSTR a Volatility Goldmine for Traders?
MicroStrategy’s elevated volatility offers a chance for experienced traders to earn higher premiums by using options strategies, particularly covered calls. This could be a lucrative way to generate additional income from MSTR’s stock price movements. However, the strategy comes with the caveat of limited upside potential, meaning traders may miss out on large price surges.
For those who are comfortable with the risks and understand how volatility impacts options trading, MSTR’s increased volatility presents an exciting opportunity. However, it’s essential for traders to carefully assess both the potential rewards and risks before engaging in such strategies.
