Mastering Covered Calls: MicroStrategy’s NASDAQ 100 Inclusion and What It Means for Your Portfolio

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MicroStrategy (MSTR) has been added to the NASDAQ 100, a move that has generated excitement and volatility in its stock. For investors using covered calls, this presents a unique opportunity to capitalize on the surge. In this blog, we’ll break down the strategy, demonstrate how to leverage MicroStrategy’s movement, and help you understand the nuances of managing in-the-money (ITM) covered calls.

Understanding the Strategy

What Are Covered Calls?

Covered calls involve selling call options on stocks you own (or an equivalent position). This strategy allows you to generate income through premiums while managing your portfolio's downside risk.

Why MicroStrategy?

MicroStrategy’s inclusion in the NASDAQ 100 has caused its stock price to climb significantly. This volatility creates opportunities to sell options with high extrinsic value ("the juice"), generating attractive premiums for investors.

Step-by-Step Guide to Covered Calls with MicroStrategy

Analyze the Market Movement

MicroStrategy’s stock recently surged by $22–23 following its inclusion announcement. Despite predictions of even higher prices, the focus should be on probabilities and risk management, not speculation.

Sell Deep ITM Calls

Selling deep in-the-money (ITM) calls helps capture extrinsic value while providing a cushion for downside risk.

Example Trade Setup:

Stock Price: $429.68
Strike Price: $400
Time Until Expiry: Four days
Premium Collected: $31.37 per contract (includes intrinsic and extrinsic value).
The extrinsic value represents the "juice" you collect as income, which decays over time.

Monitor Option Value and Extrinsic Decay

As the option nears expiration, the extrinsic value decreases. If the stock remains above the strike price, the seller collects the full premium.

Example Outcome:

Remaining Juice: $6.76 per contract
Total extrinsic income = $676 × number of contracts.
This decay process rewards patience and adherence to the trading plan.

Protect Against Downside Risks

The cushion provided by ITM calls minimizes potential losses if the stock price declines. For example, with a strike price of $400, the stock could drop to $394 before losses occur.

Follow Market Indicators

Use a market timing system to guide your decisions. For instance:

A red market signal indicates selling pressure. Avoid rolling up calls during these periods to maintain your cushion.

Stick to Your Trading Plan

Having a clear trading plan ensures consistent decision-making and reduces emotional responses to market volatility.

Advanced Insights: Focus on the Juice

The core of this strategy is capturing extrinsic value. Many investors mistakenly focus on potential losses above the strike price, but the true goal is to maximize the consistent income from the "juice."

Example of Extrinsic Value Dynamics

Stock at $429.68
Strike Price at $400
Extrinsic Value at Expiration: $6.76
This setup allows you to profit steadily as the option loses extrinsic value, regardless of the stock's movement above the strike price.

Life-Improving Tips

Avoid Predicting Market Trends: Focus on probabilities and risk management rather than trying to predict price movements.
Prioritize Extrinsic Value: Recognize the importance of capturing "juice" over time.
Stick to the Plan: A disciplined approach reduces the chances of costly mistakes.
Invest in Education: Learn the intricacies of ITM covered calls to enhance your strategy.

FAQs

Q: What if the stock price drops below my strike price?
A: Losses begin below the strike price, but the premium collected provides a buffer.

Q: Why not sell at-the-money or out-of-the-money calls?
A: ITM calls provide a cushion and more predictable income.

Q: Is this strategy suitable for beginners?
A: Yes, but proper education and practice (e.g., paper trading) are essential.

Call to Action

Ready to master ITM covered calls and create a steady income stream?

Join the Income Accelerator Program starting January 15! This 4-week live training provides personalized mentorship, actionable strategies, and exclusive bonuses. Early bird pricing is just $1,197 (normally $3,997).

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Conclusion

MicroStrategy’s NASDAQ 100 inclusion presents an exciting opportunity for covered call investors. By focusing on ITM calls, capturing extrinsic value, and adhering to a disciplined trading plan, you can turn market volatility into consistent income. Open your mind to this innovative strategy, get educated, and take control of your financial future today!

Mastering Covered Calls: MicroStrategy’s NASDAQ 100 Inclusion and What It Means for Your Portfolio

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