Selling Covered Calls on MSTU
Selling covered calls on the T-Rex 2X Long MSTR Daily Target ETF (MSTU) is a great way to generate passive income while waiting for the underlying asset, MSTR, to soar in price.
Writing covered calls on MSTU, the 2x leveraged ETF that tracks MicroStrategy (MSTR), can be a high-risk, high-reward strategy for generating income. Because MSTU is a leveraged ETF, its price moves roughly twice as much as MSTR, adding volatility—and opportunity—for option sellers.
How to Sell Covered Calls on MSTU
To sell a covered call, you must own at least 100 shares of MSTU. You then sell a call option with a strike price above the current share price and a future expiration date. You receive a premium upfront for this contract, but agree to sell your shares at the strike price if the option is exercised.
This strategy can be profitable if MSTU stays flat or increases moderately. You keep the premium and either retain your shares or sell them at a profit. However, if MSTU surges due to Bitcoin or MSTR price moves, you could miss significant upside. On the flip side, if the ETF drops sharply, your losses on the shares may outweigh the premium earned.
Given MSTU’s high volatility, covered calls can generate attractive income—but they’re not for the faint of heart. Monitor closely, and consider tighter expirations and higher strike prices to manage risk.
Beware of Time Decay
Leveraged ETFs such as MSTU, which aims to deliver 2x the daily returns of MicroStrategy (MSTR), are designed for short-term trading, not long-term holding. One key reason is time decay, which refers to how the performance of these ETFs can deteriorate over time—even if the underlying asset (MSTR) trends upward.
This decay occurs due to daily compounding. Leveraged ETFs reset daily, meaning they multiply that day’s return—not the return over weeks or months. In highly volatile markets, this compounding can work against you. For example, if MSTR swings up and down over a few days but ends flat, MSTU may still lose value due to the math of compounding leveraged moves.
This effect becomes more pronounced with increased volatility and over longer holding periods. So, even if you’re bullish on MSTR, holding MSTU too long could lead to losses, unless MSTR moves up consistently without big pullbacks.
If you’re selling covered calls on MSTU, time decay can work in your favor (as the options lose value over time), but the ETF’s own decay is a separate risk. It's essential to watch both price direction and volatility closely.
