[Options] The Strength in Crypto is Hard to Ignore

Sean McLaughlin
March 23, 2023

If you would've told me a few months ago that we'd see a large crypto exchange (FTX) go bust and later a number of big banks become insolvent and collapse to zero, I would've laughed you out of the room if you followed up with: "...and bitcoin will rally."

I mean, there is no way I would've agreed with that sentiment.

Thankfully, I don't get paid for my opinions. Because the market couldn't care less about what I think.

The strength in Bitcoin (and crypto in general) has truly been a sight to behold in recent months and in particular over the last few weeks.

The poster child instrument to play bitcoin in the equities market is via Microstrategy $MSTR. For those with their head in the sand on all thing bitcoin, this software services company has transformed itself into essentially a bitcoin ETF, having invested all of its working capital into bitcoing, and taking loans to leverage into even more bitcoin.

We'll leave the discussion on whether or not this is crazy to another blog post. But for now, MSTR offers us a great way to participate in continued strength in bitcoin and we're going to do it with a defined risk options spread.

Here's the chart of Bitcoin over the past year:

Now here's the highly correlated chart of $MSTR:

We think the relative strength of bitcoin continues.

Here's the Play:

I like buying a $MSTR July 300/350 Bull Call Spread for an approximately $14.50 debit (or cheaper). This means I'll be long the 300 calls and short an equal amount of 350 calls and this debit I pay is the absolute most I can lose if we're wrong:

While my risks are defined, if $MSTR trades and closes below $240 per share at any time during my hold, I'll exit the entire position to protect whatever is left of my invested capital. I'm prepared to take a 100% loss of invested capital in a worst-case scenario, but I'd prefer to prevent that from happening if I can.

Meanwhile, I'll leave a resting GTC (good til canceled) order to sell the spread for a profit at $32.00. This would represent a more than doubling of my invested capital, and a capture of approximately 50% of the maximum value of the spread, without having to risk open profits all the way until July expiration.

If you have any questions on this trade, please send them here.

ASO subscribers who missed this week’s live video Jam Session where we reviewed activity in our options portfolio from the past week can catch it here.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.

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