iteresting move by Interactive Brokers—tightening margin requirements on $MSTR signals they’re bracing for potential turbulence.
With MicroStrategy’s heavy #Bitcoin exposure, it’s clear the market anticipates volatility as Bitcoin continues to redefine financial norms. Buckle up—it’s going to be an interesting ride.
When a market maker (MM) sells a MSTR call that is out of the money what happens?
1. they usually hedge the sold call to make it "delta-neutral".
2. so if the call is out of the money the delta on the call might be .2 ....this means the MM will go long 20 shares of the stock for every 100 shares of call options sold.
3. the delta can change if price moves
4. If price of the shares goes up the delta get closer to 1.0 as the share price approaches the strike price of the option
5. so if price rises the MM needs to buy more shares.
6 if price falls the MM needs to sell shares to stay delta neutral
Lots of people excited about the large # of calls that are set to expire on Jan 17....and thinking if price is rising as this data approaches it could spur a huge amount of mstr shares purchases(a gamma squeeze)
