How I’m Creating Income Even as MicroStrategy (MSTR) Drops $240 From Its High
In today’s volatile stock market, navigating significant price swings can feel like riding a rollercoaster. One day, a stock is up, and the next, it plunges. But if you have the right strategy, you can generate income even during market downturns. That’s exactly what I’ve been doing with MicroStrategy (MSTR), despite it being down a staggering $240 from its high. Here’s a breakdown of how I’ve managed this and why selling covered calls remains one of my favorite strategies.
The Current State of MicroStrategy
MicroStrategy is currently trading at $330, a sharp decline from its previous high of $473 on November 20. Over this time, the stock has swung wildly, reaching $378 before plummeting to where it stands today. These fluctuations might terrify the average investor, but for someone like me who trades with a system, they present an opportunity.
I’ve held MicroStrategy since November, and while the base position has lost value, I’ve been actively selling covered calls to generate income, or as I like to call it, “juice.” Despite the stock's decline, my system has allowed me to mitigate losses and even pocket profits along the way.
Breaking Down the Strategy
Let’s dive into some specifics. Recently, I closed a short position on the $357.50 call options, which I had sold for $2.65 per contract. When I closed the position, those contracts were worth just $6, meaning I had pocketed nearly all the premium I collected. This trade alone generated $16,000 in income for the week.
Here’s the beauty of this strategy:
- Income Cushion Against Losses:
Selling covered calls provides me with an income buffer as the stock declines. For example, if I sell calls at $357.50 and collect a premium, that premium acts as a cushion. Even if the stock falls below my strike price, the income from the options helps offset the loss. - Adjusting for Market Conditions:
I rolled my call positions as the stock moved, allowing me to capitalize on market conditions. While I may have slightly mistimed one roll-up, the flexibility of this strategy ensured I still generated income. - Extrinsic Value is Key:
My focus is on the extrinsic value of the options I sell. By continuously selling calls with high extrinsic value, I’ve created consistent income. Even as the stock dropped from $473 to $330, I’ve been able to stay ahead.
The Numbers Tell the Story
Since November, I’ve generated $113,000 in income from selling calls against my MicroStrategy position. While my base position, originally worth $260,000, is now valued at $136,900, the income I’ve generated has offset nearly all of the unrealized losses. If I decided to walk away today, my total loss would be just $10,000—despite the stock dropping $240.
This is the power of selling covered calls. It transforms a potentially devastating loss into a manageable situation while creating opportunities for income.
Why This Strategy Works
Covered calls shine in volatile markets, especially with high-beta stocks like MicroStrategy. Here’s why:
- Juice from Premiums: Selling options premiums provides consistent income, even when the underlying stock declines.
- Downside Protection: The premiums collected serve as a cushion against losses.
- Flexibility: Rolling positions allows for adjustments based on market conditions, maximizing profitability.
Lessons Learned
While this strategy has been effective, it’s not without its challenges. One lesson I’ve learned is to be cautious when rolling up positions in a declining market. Rolling up increases risk in a bearish environment, but it can still provide additional income.
That said, the bigger takeaway is the importance of having a trading plan. A well-thought-out plan allows you to navigate market volatility, capitalize on opportunities, and minimize losses.
How I’m Creating Income Even as MicroStrategy (MSTR) Drops $240 From Its High
In today’s volatile stock market, navigating significant price swings can feel like riding a rollercoaster. One day, a stock is up, and the next, it plunges. But if you have the right strategy, you can generate income even during market downturns. That’s exactly what I’ve been doing with MicroStrategy (MSTR), despite it being down a staggering $240 from its high. Here’s a breakdown of how I’ve managed this and why selling covered calls remains one of my favorite strategies.
The Current State of MicroStrategy
MicroStrategy is currently trading at $330, a sharp decline from its previous high of $473 on November 20. Over this time, the stock has swung wildly, reaching $378 before plummeting to where it stands today. These fluctuations might terrify the average investor, but for someone like me who trades with a system, they present an opportunity.
I’ve held MicroStrategy since November, and while the base position has lost value, I’ve been actively selling covered calls to generate income, or as I like to call it, “juice.” Despite the stock's decline, my system has allowed me to mitigate losses and even pocket profits along the way.
Life-Improving Tips for Trading in Volatile Markets
- Focus on Income Generation: Selling covered calls can provide a steady income, even when your stocks are down. This can bring financial stability and peace of mind in uncertain times.
- Stick to a System: Emotional trading is a recipe for disaster. Develop a rules-based approach, like focusing on extrinsic value when selling options, to make data-driven decisions.
- Embrace Flexibility: The market is unpredictable, but strategies like rolling covered calls allow you to adapt to changing conditions without panic.
- Track Your Progress: Monitor both your gains and losses. By tracking how much income you’re generating versus your unrealized losses, you’ll have a clear picture of your overall performance.
- Educate Yourself Continuously: Knowledge is power in trading. Learn about advanced strategies like covered calls and keep up with market trends to stay ahead.
Breaking Down the Strategy
Let’s dive into some specifics. Recently, I closed a short position on the $357.50 call options, which I had sold for $2.65 per contract. When I closed the position, those contracts were worth just $6, meaning I had pocketed nearly all the premium I collected. This trade alone generated $16,000 in income for the week.
Here’s the beauty of this strategy:
- Income Cushion Against Losses: Selling covered calls provides me with an income buffer as the stock declines.
- Adjusting for Market Conditions: Rolling positions allows me to capitalize on market fluctuations while minimizing losses.
- Extrinsic Value is Key: Selling options with high extrinsic value ensures consistent income, regardless of market direction.
FAQs About Selling Covered Calls
- What is a covered call?
A covered call is a strategy where you sell call options on a stock you already own. This lets you earn premium income while retaining ownership of the stock. - Can I use this strategy with other stocks?
Absolutely! Covered calls work best with stocks that are volatile or have high premiums. However, this strategy requires you to own at least 100 shares of the stock. - What happens if the stock price rises above my strike price?
If the stock price rises above the strike price, your shares may be called away (sold at the strike price). While you’ll miss out on further upside, you still keep the premium you collected. - Is selling covered calls risky?
Covered calls are relatively low-risk because they’re backed by stock you already own. However, the risk lies in the potential loss of your stock’s value, so it’s important to manage your positions carefully. - How do I get started with selling covered calls?
Start by identifying a stock you own and choosing a strike price slightly above its current value. Sell call options against your shares and collect the premium.
The Numbers Tell the Story
Since November, I’ve generated $113,000 in income from selling calls against my MicroStrategy position. While my base position, originally worth $260,000, is now valued at $136,900, the income I’ve generated has offset nearly all of the unrealized losses. If I decided to walk away today, my total loss would be just $10,000—despite the stock dropping $240.
This is the power of selling covered calls. It transforms a potentially devastating loss into a manageable situation while creating opportunities for income.
Call to Action
Are you tired of market volatility eating into your portfolio? Take control of your trading with a proven system like selling covered calls!
Conclusion
MicroStrategy’s $240 drop may seem like a disaster for many investors, but with a disciplined approach to selling covered calls, I’ve turned it into an opportunity to generate income. This strategy isn’t just about surviving a bear market—it’s about thriving in it.
Remember, success in trading comes down to having a system and sticking to it. Whether the market goes up or down, strategies like selling covered calls can create consistent income, reduce risks, and improve your financial future.
