Investment Strategies / Falling Knives
No. of Recommendations: 5
This is an interesting one to watch from the sidelines, not sure I would want to participate in any speculation on the potential future.
Background : MSTR is a 'leveraged bitcoin holding company' - they issue preferred shares and then buy bitcoin with the proceeds. The basic premise is that they can find new buyers (suckers) to sell new shares to fund the preferred payouts due every quarter. If bitcoin is trading higher this sort of works.
Well bitcoin is down 30% since October, raising questions about what MSTR will do to raise money for the December payout. They might need to sell bitcoin to raise the required capital. Yes, its a ponzi scheme.
MSTR stock is down 60% from July (from $450 to $180 / share), I sometimes wish I had the courage to short this :)
tecmo
...
No. of Recommendations: 2
MSTR stock is down 60% from July (from $450 to $180 / share), I sometimes wish I had the courage to short this :)
On Nov 22, 2024 MSTR closed at ~$421. Some time during that day I bought $30 puts (Jan'27 expiration) for $3.70. Just one contract, so $370 "investment".
A little over a year later, with the stock 56% lower than when I bought the puts, the puts are worth $2.47. The implied volatility must have been through the roof when I bought -- I don't think time value decay fully explains it.
No. of Recommendations: 7
MSTR stock is down 60% from July (from $450 to $180 / share), I sometimes wish I had the courage to short this :)
If it's any consolation, I was thinking of shorting this stupid business when it was about $120, about a year and a half ago, when it had fallen back from its irrationally exuberant peak of about $150 - I figured it would head right back to low double digits, where it belonged. I didn't, because I swore of shorting after many losses. If I had had the 'courage', I would have had some serious stress when it was over $400 later the same year, and again as recently as July. If it goes to zero, we will all feel stupid for not having shorted it, but this is the terrible reality of shorts - you can be right, and they can still kill you.
I think a better idea is to buy a long-term (say 2027) put, on a day like today when the stock is up strongly, and use that as entertainment vaue (not really as an investment), instead of shorting. Less bragging rights, but better sleeping at night.
Regards, DTB
No. of Recommendations: 5
A little over a year later, with the stock 56% lower than when I bought the puts, the puts are worth $2.47. The implied volatility must have been through the roof when I bought -- I don't think time value decay fully explains it.
More likely the problem is that your strike was so low that even a 56% fall leaves the stock price miles above your strike. $30 is pretty low compared to today's price of $184, so it likely that option would pay out only in the even of something resembling bankruptcy. (not to be ruled out! but might take time...)
Higher strike puts are expensive, of course.
One strategy to help a bit, letting you get a slightly higher strike for your dollar at risk:
Say something is trading for $100 and you think it will hit a price below $50. Maybe below $35, maybe not. But a put at (say) $60 is too expensive for your level of conviction. So, you could buy a $60 put (preferably on an "up" day) and sell a $35 put (preferably on a "down" day) to partially offset some of the cost of the $60 one. You give up the profit of any potential drop below $35, but it was the drop to $50 you were most sure about, so that's OK.
Writing the $35 put is zero risk, PROVIDED you don't close the $60 one first. If the low strike one starts losing you money, with each dollar of price fall you'll be making as much or more on the $60 one the whole time.
For the real dweebs, have a gander at a "short iron condor" payoff diagram, and imagine it entirely below the current stock price. (gander, condor, birds, get it?) You make a predictable amount if the stock price settles into the range you choose, and lose a bounded amount known in advance if it doesn't.
Jim
