MicroStrategy Options Hedge Risk of 96% Drop After Bitcoin Rout

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(Bloomberg) — Few companies are tethered as closely to Bitcoin as MicroStrategy Inc., a software company that’s plowed its profits and borrowed money into the cryptocurrency.

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Shares of the Tysons Corner, Virginia-based company have tumbled alongside Bitcoin, dropping more than 50% since the end of March to around $230.

Yet options activity shows some investors are eager to protect against — or bet on — an even deeper hit. Some of the most active options traded Tuesday were puts with January expirations that give the owner the right to sell the stock at $40, $20 and even $10. There had been no open interest in those contracts before.

Such extreme bets could be from someone hedging a long position in the stock or in Bitcoin. But they amount to bets on a further drop of around 80%, 90% or 96% from current levels, respectively.

Shares of MicroStrategy, whose Chief Executive Officer Michael Saylor is regarded as a top Bitcoin evangelist, are often used as a proxy for the cryptocurrency given how heavily the company has tied its fortunes to it. MicroStrategy’s stock market capitalization has broadly mirrored the value of its Bitcoin holdings.

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