Copyright Investor's Business Daily
Bitcoin play Strategy (MSTR) closed near its low of the day in Tuesday's market drop, and the stock is below its 21-day, 50-day and 200-day moving averages. Also, Strategy's relative strength line has declined since mid-July, and the stock is showing signs of heavy selling pressure. With the price of bitcoin dropping below $100,000, Strategy stock could remain under pressure for some time. Last month, we looked at a bear call spread on Strategy that can be closed for almost a full profit. Now, that exposure will be rolled out to December expiration. It's also time to consider a bear call spread that assumes Strategy will struggle to get back above 315, around its 50-day line currently, between now and mid-December. A bear call spread involves selling an out-of-the-money call and buying a further out-of-the-money call. The strategy can be profitable if the stock trades lower, sideways and even if it trades slightly higher, as long as it stays below the short call at expiry. Setting Up A Trade Strategy For Strategy A Dec. 19 expiry bear call spread on Strategy stock using the 315-320 strike prices can be sold for around 70 cents. Traders selling the spread would receive $70 in option premium, which is also the maximum possible gain. The maximum loss would be $430. That represents a potential return of 16.3% between now and Dec. 19. The spread will achieve the maximum profit if Strategy stock closes below 315 on Dec. 19. In that case, the entire spread would expire worthless, allowing the trader to keep their $70 option premium. That means a 25% gain in Strategy still keeps this bearish trade at max profit. The maximum loss will occur if Strategy closes above 320 on Dec. 19, which would see the premium seller lose $430 on the trade. While some option trades have the risk of unlimited losses, a bear call spread is a risk-defined strategy, and you always know the worst-case scenario in advance. A stop loss could be set if Strategy trades above 305, or if the spread value rises from 70 cents to 1.40 Bear call spreads can be a good way to potentially generate some income while a stock remains in a downtrend. Bitcoin Play Strategy: Rankings At IBD Investor's Business Daily gives Strategy stock a Composite Rating of 37 out of a best-possible 99, an Earnings Per Share Rating of 80, and a Relative Strength Rating of 12. According to IBD Stock Checkup, Strategy ranks 48th in the Financial Services-Specialty industry group. The group itself stands at 36 of the 197 industries tracked by IBD. Winning stocks are historically found in the top 40 industry groups. Strategy reported earnings in late October, so this trade should not have any earnings risk if held to expiration. Last week, we looked at a bear put spread on Boeing (BA), which was quite timely and is working well so far. Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your due diligence and consult your financial adviser before making any investment decisions. Gavin McMaster has a masters in applied finance and investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ. YOU MIGHT ALSO LIKE: Here's A Potential Robinhood Stock Trade With Earnings On The Way With Boeing Stock Below Its 50-Day Line, Consider This Option Trade How To Boost The Yield On Coca-Cola Stock Using Options
