[Options] The "Bitcoin ETF"

Sean McLaughlin
November 3, 2021

Ok, so technically Microstrategy $MSTR is not a bitcoin ETF.

But for those of you paying attention to this space, you know that the CEO Michael Saylor has gotten very long and very loud about his company investing significant portions of its operating capital in Bitcoin. And because of this, the share price of $MSTR stock has since become highly correlated to the price action of Bitcoin.

We were chatting about it this morning and the one thing the team all agreed on is 10 years from now, Saylor is either going to go down as the Greatest Fool in History, or, The Greatest Investing Genius in History. There's really no other outcomes here for him. And you know what? I say cheers to you, Michael Saylor! Way to put your cohones on the line for something you so passionately believe in. Your investors will either one day elevate you to Sainthood or sue you into oblivion. Godspeed.

We've got our popcorn ready and we'll be watching!

Anyway, all of the above makes for fun coffee table conversation. But we traders only care about the price action and how we can profit from it. So let's get right to it.

Here's the chart of $MSTR and it's correlation with Bitcoin:

See what I mean about MSTR basically being an ETF for bitcoin?

My crypto guy Louis (pronounced Lou-eeeeeeeeeeeee) tweeted this earlier today:

(P.S. if you're into crypto, you NEED to be following @haumicharts. He brings the Thunder from Down Under! Ok, actually New Zealand, but close enough.)

If you agree as I do and see what we're seeing in the tea leaves for bitcoin, then it's probably time for $MSTR to also have it's time to shine (again).

And thankfully, MSTR has very liquid and deep options for us to wade into this pool confidently.

The team all agreed that if this stock is going to run, it's going to runnnnnnnnnn! Reclaiming its February highs of $1315 per share would not be out of the question. That is nearly double from here! And it could happen in within the next couple of quarters.

Of course, JC was all about "LET'S DO A RISKEEEEEEEE!!" (his little nickname for Bullish Risk Reversals), but I wouldn't feel comfortable holding naked puts in this name or in anything so closely tied to the price action of bitcoin. But no worries, there's always a strategy we can use -- no matter what our concerns. Enter: The Bull Call Spread.

Here's the Play:

I like buying a $MSTR April 900/1000 Bull Call Spread for any debit below $24.00. This means I'll be long the 900-strike calls and short an equal amount of 1000-strike calls for a net debit which represents the most I can possibly lose.

I chose the April expiration series because that's the furthest I could go out without going too far (Jan 2023 is the next open series after April, currently). I would've preferred May or June options, but we can only work with what's available.

I chose the 900/1000 strikes because I like the idea that $MSTR will at least make another run at $1000 per share, even if it doesn't make a run for it's All-Time highs. So this gives us plenty of opportunity to profit in either scenario.

As long as $MSTR can hold above $700 per share, I'll continue to hold this position. Any close below $700 is my signal to turn out the lights on this trade and close it down for what shouldn't be too big of loss. Of course, I'll size my position fully understanding I could lose 100% of my invested capital. When in doubt, go smaller!

If/when the move we're looking for materializes, I'll look to close this spread out for a $60.00 credit. This would represent capturing approximately 50% of the maximum possible gains in the trade without having to hold it all the way until April expiration and giving the crazy crypto gods every opportunity to reclaim my profits. It would also earn us a nice 150% gain on our invested capital. Welcome to the world of Crypto!

JC and I will be live on twitter this afternoon talking about this trade. Join us around 2:30ET!

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

~ @chicagosean

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!

 

 

Filed Under: