Maximizing Profits with Covered Calls: MicroStrategy's Recent Surge

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MicroStrategy (MSTR) has experienced a significant price increase, reaching $301.76, which places it nearly 20 points above the $285 strike price. Investors often face a dilemma when a stock moves above the strike price of their covered calls. However, experienced traders know that focusing on the juice—the extrinsic value of options—is key to maximizing profits. In this blog, we’ll explore the strategy of collecting premium income while maintaining a strong base position, even when a stock moves significantly.

Understanding the Covered Call Strategy

What is a Covered Call?

A covered call involves holding a stock and selling call options against it. This strategy allows investors to generate consistent income while owning a stock position. The key components include:

Stock Ownership: The trader holds shares of the stock (MicroStrategy in this case).
Selling Call Options: The trader sells call options at a predetermined strike price.
Collecting Premiums: The trader earns income from the option’s extrinsic value, also known as the juice.

Why the Strike Price Doesn't Matter as Much as You Think

Many investors panic when the stock price surpasses their sold call’s strike price, believing they are losing potential profits. However, this mindset ignores the bigger picture.

If you’ve sold covered calls and the stock rises above the strike price, it’s not necessarily a bad thing. It simply means you’ve maximized the return on your base position while still collecting income from option premiums. In this case, MicroStrategy's stock rising above $285 is not a loss but a gain.

MicroStrategy's Price Surge and Trading Plan

The Initial Trade

Last week, MicroStrategy was trading at $251, and covered calls were sold at a $285 strike price with a premium of $5.79 per contract. This resulted in an upfront income for the trader. Now, with MicroStrategy at $301.76, the position remains strong.

Base Position Value: The underlying stock position has appreciated significantly.
Options Premium (Juice): The $5.79 collected per contract remains profit.
Total Income Calculation:

9 contracts sold
$5.79 per contract
Total collected: ~$5,200

Why Not Buy Back the Call?

With the call options now trading at $13.40, some traders might consider buying them back. However, this would mean giving back some of the hard-earned premium. Instead, holding the position until expiration allows the extrinsic value to decay to zero, maximizing profits.

Key Takeaways from This Trade

The Market Moves in Cycles

The stock market experiences bullish and bearish cycles, and MicroStrategy’s price action reflects this. The key is to stick to your trading plan rather than reacting emotionally to price movements.

Juice is the Focus, Not the Strike Price

Rather than worrying about the stock price exceeding the strike price, focus on collecting the juice consistently. Weekly or biweekly option expirations allow traders to generate consistent cash flow.

Covered Calls Provide a Cushion

With MicroStrategy’s price currently $20 above the strike price, the covered call strategy provides a buffer against short-term fluctuations. Even if the stock pulls back, the collected premiums help offset potential losses.

Life-Improving Trading Tips

Stick to a Trading Plan

Define your entry, exit, and adjustment strategies before executing trades.
Avoid making impulsive decisions based on emotions.

Learn to Read Market Signals

Use technical indicators such as moving averages and volume analysis.
Identify trends before making adjustments to your strategy.

Manage Risk Effectively

Always hedge against downside risks.
Adjust position sizing to maintain long-term sustainability.

Be Patient with Market Movements

Short-term fluctuations are normal.
Focus on long-term wealth accumulation through consistent strategies.

Frequently Asked Questions (FAQs)

What happens if the stock moves far above my covered call strike price?

If the stock price rises significantly above the strike price, your covered call will be exercised at expiration. You keep the premium collected and sell your stock at the strike price. However, if you want to maintain your position, you can roll the option to a higher strike price.

Should I roll my covered call to a higher strike price?

Rolling a covered call means buying back the current option and selling another one with a later expiration date and a higher strike price. This strategy can be useful if you want to maintain ownership of the stock while continuing to collect premium income.

How do I decide on the best strike price for selling calls?

Choose a strike price above your entry price to maximize gains.
Consider market conditions and stock volatility before setting the strike price.

What is the best expiration period for covered calls?

Weekly options provide frequent premium collection but require active management.
Monthly options offer higher premiums per contract with less frequent adjustments.

How do I handle covered calls in a red market?

If the market is declining, consider adjusting to lower strike prices.
Hedge positions by selling calls with higher premiums to protect against downside moves.

Call to Action

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Conclusion

MicroStrategy’s recent surge demonstrates why focusing on consistent premium income is key to successful options trading. Instead of reacting emotionally to stock movements, traders should maintain a disciplined approach by:

✅ Selling covered calls strategically

✅ Collecting premium income consistently

✅ Rolling options when necessary

✅ Managing risk in all market conditions

By mastering these principles, you can generate steady income while holding strong stock positions.

Maximizing Profits with Covered Calls: MicroStrategy's Recent Surge

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