Shares of analytics software company MicroStrategy (MSTR) are down 75 percent over the past year, largely due to the company’s decision to leverage up its balance sheet to buy Bitcoin. One trader sees a modest rebound in the coming weeks.
That’s based on the January $160 calls. With 18 days until expiration, 4,737 contracts traded compared to a prior open interest of 199, for a 24-fold rise in trading volume. The buyer of the calls paid $3.65 to make the bet.
Shares recently traded for about $130, so the stock would need to jump over 20 percent in under a month for the option to move in-the-money. MicroStrategy has ticked lower in the past month even as the price of Bitcoin has stabilized in the high $16,000 range.
The underlying company has performed flat over the past year, and the selloff has taken shares from 80 times estimated earnings to 45. That’s still a bit pricey, but the company’s earnings are wildly impacted by mark-to-market changes in the value of its crypto holdings each quarter.
Action to take: Investors expecting Bitcoin to move higher over time could consider buying shares at today’s prices.
The current stock price underrepresents the amount of Bitcoin per share. As long as MicroStrategy doesn’t face a margin call and prices recover, the share price could soar again, although that will take time.
For short-term traders, the January $150 calls could be good for mid-double-digit gains in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.