MicroStrategy (MSTR) is seeing a surge in volatility, now measured at 2.5 times that of Bitcoin, presenting an opportunity for options traders to potentially increase their income. However, this strategy also comes with inherent risks.
As the largest publicly traded holder of Bitcoin, MicroStrategy owns over 380,000 BTC. Investors seeking indirect exposure to Bitcoin have been driving up MSTR’s stock price, which has increased by 500% this year. In contrast, Bitcoin itself has seen a 124% rise, according to data from CoinDesk and TradingView.
The outperformance of MicroStrategy extends beyond price movements. As of Monday, the 30-day implied volatility (IV) of MSTR’s options stood at an annualized 140.86%, according to OptionCharts.com. This is 2.5 times higher than Bitcoin’s implied volatility of 55.65%, as measured by Deribit’s DVOL index. Deribit is the leading crypto options exchange, and its data reflects the heightened market expectations for price fluctuations in MicroStrategy shares.
For traders, high implied volatility presents an opportunity to earn more income through options trading. Implied volatility drives up premiums for options, which are contracts that give the holder the right—but not the obligation—to buy or sell an asset at a predetermined price. A call option gives the right to buy, while a put option provides the right to sell.
When IV rises, the premiums for options also increase, meaning traders can collect more money by writing or selling call/put contracts. Savvy traders can take advantage of this by selling call options at strike prices significantly higher than the current market price of the underlying asset. This is known as a covered call strategy, where traders sell calls while holding the underlying asset. The premiums collected from the call options act as extra income on top of their spot holdings.
In the case of MSTR, its higher volatility means a covered call strategy could yield returns 2.5 times greater than a similar strategy using Bitcoin options. The market is already buzzing with discussions of traders looking to “monetize MSTR volatility.”
However, it’s important to remember that this strategy carries risks. While it offers the potential for extra income, it also limits upside potential. If the market surges unexpectedly, traders who have written covered calls may miss out on significant gains, making it more beneficial to simply hold the asset rather than engage in options trading.
