The volatility of MicroStrategy, a company listed on Nasdaq and the largest publicly traded holder of bitcoin, is currently being tracked at 2.5 times that of bitcoin. While this might cause unease among many market players, it signals a potential increase in earnings to astute investors who are involved in options trading.

MicroStrategy holds a considerable bitcoin reserve, with over 380,000 BTC under its control. This year, investors who wanted to gain exposure to the crypto market but didn’t want to directly hold the cryptocurrency have invested heavily in MicroStrategy, triggering a significant 500% boost in its share price. In comparison, bitcoin’s value has increased by 124% this year, as reported by CoinDesk and TradingView.

MicroStrategy’s superior performance isn’t just limited to its share price. According to data from OptionCharts.com, as of Monday, the company’s 30-day options-based implied volatility (which reflects the anticipated price fluctuations over the next four weeks) stood at an annualized rate of 140.86%. That’s 2.5 times more than the 30-day implied volatility of bitcoin, which was 55.65% according to the DVOL index from Deribit, a leading crypto options exchange.

What does high IV mean for income?

Implied Volatility (IV) impacts the prices or premiums of options or derivatives, which give buyers the right (but not the obligation) to purchase or sell an underlying asset at a predetermined price at a future date. A call option gives the right to buy, and a put option gives the right to sell.

As IV increases, the premiums on options also increase, enabling traders to collect higher premiums from writing or selling call/put contracts. Smart traders who hold the underlying asset can take advantage of this by writing call options at strike prices significantly higher than the current market rate of the asset. This strategy allows them to collect a premium, which adds to their yield from spot market holdings.

If the market sees an upswing, the profits from their spot holdings can more than cover any losses resulting from being short the call. This type of strategy, known as a covered call, is common in both equity and BTC options markets.

Given MicroStrategy’s comparatively higher volatility, a covered call strategy involving MSTR options could yield returns 2.5 times higher than those from BTC options. Traders are already discussing the potential to “capitalize on MSTR’s volatility.”

However, it’s important to remember that the covered call strategy comes with its risks. While it can generate additional income, it can also limit potential gains, implying that significant market rallies could be missed, and simply holding onto the bitcoin stash might be more beneficial.