What to know:
As a seasoned crypto investor with years of experience under my belt, I find myself intrigued by the current state of MicroStrategy (MSTR) and its sky-high volatility. Having navigated through numerous market cycles, I can attest that this level of turbulence is unlike anything I’ve ever seen in the crypto space – or perhaps any other investment arena for that matter!
The volatility of stocks on the Nasdaq, like those held by MicroStrategy (a Bitcoin holder), has reached a level that is approximately 2.5 times greater than that of Bitcoin itself. This notable benchmark could make some market participants apprehensive, but for investors who are skilled in options trading, it represents an enhanced opportunity for generating income.
In simple terms, MicroStrategy is currently the global company with the most publicly traded bitcoins, holding more than 380,000 units. This year, investors seeking a way to be involved in the cryptocurrency market without directly owning it have been putting their funds into MicroStrategy’s stock. As a result, the stock price has skyrocketed by an impressive 500%. Meanwhile, bitcoin itself has experienced a growth of 124%, as reported by data providers CoinDesk and TradingView.
In simpler terms, when it comes to MSTR (Mastercard), its outperformance isn’t limited to just its stock price. In fact, the market anticipates more price fluctuations for MSTR over the next month, as evidenced by its 30-day implied volatility of 140.86% annually, according to OptionCharts.com. This is approximately twice the volatility expected for Bitcoin (BTC) in the same period, with a 30-day implied volatility of 55.65%. The data for Bitcoin’s volatility comes from Deribit’s DVOL index, which is the world’s leading exchange for crypto options.
High IV means more income
Options or derivative prices (premiums) are influenced favorably by implied volatility. This means that when there is a higher expected volatility of an underlying asset, the cost of options granting the buyer the choice, but not requirement, to acquire or dispose of this asset at a future agreed price becomes more expensive. A ‘call’ option provides the right to purchase, while a ‘put’ option allows the holder to sell the underlying asset.
As an IV (Implied Volatility) goes up, it leads to a higher cost for options premiums. This advantage can be utilized by traders who can earn larger premiums when they write or sell call and put contracts.
Skilled traders who own the underlying asset take advantage of this situation by writing call options at prices well above the current market value of the asset. By selling these ‘out-of-the-money’ calls, or essentially insurance against price increases, they receive a premium. This premium serves as additional income on top of their earnings from holding the asset directly.
If the market rises, the profits from holding positions (spot) will outweigh any losses experienced by selling call options (being short). This strategy, known as a covered call strategy, is commonly used across both traditional stock markets and Bitcoin options trading.
A more volatile position in MSTR compared to BTC suggests that employing a covered call strategy using MSTR options may potentially yield returns approximately four times larger. The financial world is abuzz with chatter about capitalizing on MSTR’s volatility by traders.
Keep in mind, readers, that the strategy of covered calls involves risks. Although it may generate extra earnings, it simultaneously limits potential gains, which means you might miss out on substantial price surges. In such cases, it could be more advantageous to simply keep your investment in the stockpile.
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2024-12-03 15:46