Bitcoin excitement extends to stocks; Now is the time for MicroStrategy to add some downside protection to longs

Pseudonymous cartoonist “Stonetoss” on the volatility of Bitcoin.

More Sunday-Monday excitement for Bitcoin

Have we never been here? Bitcoin bounces back on a Sunday after some rumors of wider adoption or some other catalyst and then bounces off the top of its range on Monday. This time the rumor got around Amazon, Inc. (NASDAQ: AMZN) Bitcoin accepted for purchases, a claim Amazon rejected on Monday.

Bitcoin stocks rally

Monday was a big day for Bitcoin-related stocks, with some of the ones we mentioned here being miners Marathon Digital Holdings, Inc. (NASDAQ: MARA) and Riot Blockchain, Inc. (NASDAQ: RIOT) and the company of Bitcoin evangelist Michael Saylor MicroStrategy, Inc. (NASDAQ: MSTR) all rose more than 20% for the day, with MSTR gaining more than 26%. RIOT and MSTR were our top ten names two months ago.

Screen capture via Portfolio Armor on Thursday, May 27, 2021.

Both have climbed double digits since then, but this top ten cohort is lagging behind SPDR S&P 500 Trust (NYSE: SPY) so far, thanks in part to lousy returns on silver stocks.

FUD protection for MicroStrategy

Apparently, no opinion about Bitcoin was changed on Monday. Michael Saylor still thinks it’s going to the moon, and Peter Schiff still thinks it’s going down.

Whatever Bitcoin’s ultimate trajectory, we can now expect another round of FUD (fear, uncertainty and doubt). With that in mind, shareholders of one of Monday’s big winners, MicroStrategy, might want to add some protection here.

Too expensive to hedge with puts

One of the challenges is that it is now expensive to put puts into MicroStrategy. If you had scanned for an optimal or cheapest put hedge against a decline of more than 25% on Monday, you would have received this error message.

This and subsequent screenshots are created using the Portfolio Armor iPhone app.

You would have received this error message because the cost of hedging MSTR against a> 25% decline over our standard timeframe (approximately six months) was itself more than 25% of the position value.

Inexpensive protection with an optimal collar

If you were ready to limit your possible uptrend at 40%, it was possible to hedge the MSTR against a decline of> 25% for the next few months with this optimal collar.

Here the net cost was negative, meaning that if you had conservatively assumed you would have placed both trades at the worst end of their respective spreads (buying the puts on the ask and selling the calls on the Bid). If you had placed both trades within the spread, you would have raised more than $ 500.

It may be worth looking for an updated coverage to see if you can get a similar or better one with current prices.

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