Speculation is growing about whether Michael Saylor’s MicroStrategy will join the S&P 500, with an announcement expected this Friday. The S&P 500 index, which is updated every quarter, added companies like Jack Dorsey’s Block in July. Other potential candidates for inclusion this time are Robinhood and Applovin.

MicroStrategy’s Performance and Eligibility

In 2024, MicroStrategy was a top performer, with a market cap nearing $98 billion and holding 636,505 BTC worth around $71 billion. The company meets all the S&P 500 requirements: it is based in the U.S., has a market cap over $22.7 billion, and has enough liquidity. Supporters of bitcoin believe that if MicroStrategy is included in the S&P 500, it would indirectly give more 401Ks, robo-advisors, and pension funds exposure to cryptocurrency. With the potential announcement of MicroStrategy’s inclusion in the S&P 500 coming on Friday, September 5th, we anticipate significant volatility in MSTR’s stock and its related products. The outcome will likely cause considerable price changes, making options strategies that focus on volatility the key approach. The optimistic view is that inclusion will force passive index funds to purchase the stock, leading to a surge in demand. Currently, implied volatility on MSTR’s weekly options has spiked to over 150%, indicating that traders expect a price move of 15% or more. A long call spread may be a smart way to bet on an increase while managing risk, especially since outright calls have become quite expensive.

Investment Strategies and Market Impact

We witnessed a similar event in December 2020 when Tesla was added to the index, causing its stock to rise nearly 70% between the announcement and the actual inclusion date. If MicroStrategy is added, we might see traders buying in advance of the index funds. These funds, which manage over $11 trillion, would need to purchase approximately $20 billion worth of MSTR shares to align with the index weighting. This announcement could make MSTR’s price more influenced by specific market dynamics rather than daily bitcoin price changes. A significant influx of capital could act as a catalyst for MSTR, potentially increasing its premium over its bitcoin holdings. Consequently, we should consider this event separately from the overall cryptocurrency market for the upcoming weeks. On the other hand, if MicroStrategy is not included in the index, we could see a sharp drop in the speculative premium, causing the stock price to fall significantly. To navigate this volatility, a long straddle—buying both a call and a put option—might be a good strategy. This approach can profit from large price movements in either direction, though the high implied volatility makes it a costly position to take. Create your live VT Markets account and start trading now.

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