This is the main question that keeps coming up in the Kilo Club, so I want to sit down and walk through it with you. Quick reminder first. This is not financial advice. I am not a CPA and I am not a trading advisor. With that, let me get started.
So many of you have asked me the same thing about Micro Strategy. Why can't I get a modified synthetic long to price out? What trade should I be looking at? What am I actually doing right now? I even want to circle back to a post from Invest Answers a little over a week ago, because I do have an idea of what he is looking at. Underneath all of these questions is really one question. When do you buy a little, when do you buy a little more, and when do you decide to pounce?
That is the common theme. I don't know when to do a little versus a lot. I don't know when to buy stock versus when to buy a synthetic long. So let me walk you through my steps and see if I can clear some of it up.
Here is where I start. I pull up my DCAS one day chart on Micro Strategy. We are consolidating right around the 50 and the 100 EMAs, and there are a lot of buy signals firing. When I compare DCA to DCAS, DCAS is outperforming by roughly 3 to 1, and that is the kind of thing I pay attention to. I do this research at least once a week. It does not take long to look at my charts and my numbers and get a true read on the structure of the market.
Then I asked myself a simple question. Is this a normal number of signals, or is this unusual? So I went back. And back. There was nothing like this for a very long time. I had to go all the way to the September 2023 low to find anything remotely similar to what I am seeing right now. That right there told me this is a place to start to pounce.
What I Did In Kilo Club/ Rapid Fire
Once I saw that signal, you saw me pull both levers on my modified synthetic longs. I took my long puts and rolled them lower as far as I could go, for 60 cents on the dollar credit and higher. Then I took that money, took my LEAPS, my long calls, and rolled them down as low as I could go for less than 30 cents on the dollar debit. I repositioned the whole trade to be strategic for a rally. This is the rolling and repair logic I teach in Course 301, and it is the same modification that I walked through back in MM40.
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Why A Modified Synthetic Long Does Not Work Right Now
A lot of you said, I want a modified synthetic long. And I am going to tell you, respectfully, no you don't. Not here. Let me show you the math.
If I sell the 100 put and buy the 80 put, believe it or not that put spread brings in a 15 dollar credit. It is only a 20 wide spread, so that is a 75 percent credit. Great so far. Then I go buy my 50/50 intrinsic to extrinsic call, the 70, and the debit on it is still 52. Why is that debit so high? Because IV is high. In a high implied volatility environment this structure will not work, because you need to sell huge premium to offset huge premium, and the market is not letting me do that cleanly.
Here is my number one rule. My risk has to be less than half the value of the stock.
Now you might say, well it is, the debit is only 52 and the stock is 100. Nope. Micro Strategy is 100, and the debit is roughly 50 percent, but I still carry 20 dollars of risk on the spread. So my actual risk is 72, the debit plus the width of the spread. Am I going to risk 72 on a 100 dollar stock? No. So this trade does not work today. I break down exactly how this structure is built and priced in Course 301.
Understand The Real Risk Before You Reach For Leverage
So what does work? Two things, and the first is simply buying stock with DCAS, because not everyone can afford the risk of a synthetic long. And I want you to actually understand that risk before you take it. I am not saying it is good or bad. These are just the facts, and understanding your risk is the whole job.
If you sell a 95 put and buy a 90 call, you will look at the 15 dollar debit and think that is your risk. It is not. Your real risk is that short put all the way to zero. A 95 short put is 95 times 100 (shares), so that is $9,500 of risk right there, plus the $1,500 debit. That is roughly $11,000 of real risk per contract. If your account is 200,000 and you are comfortable with that, I am not telling you to do it or not do it. I am telling you to know the number. And if you are newer with a 50,000 dollar account thinking you cannot stomach 11,000 of risk, you are probably right. This is exactly the distinction I make in MM28 and MM29 when I compare a synthetic long to a modified synthetic long. The leverage is wonderful, but only when the risk fits your account.
That Does Not Mean There Is No Trade For You
Not at all. This is exactly what DCAS was built for. It helps you buy stock at strategic levels, and it keeps you out of this entire drop. On the way down it kept saying buy a little, buy a little. Remember what the multiplier means. A reading of .5 means if you would normally buy $100 dollars worth, only buy $50. Only buy $50. Now it is reading 1.8 and 1.99, and up above 2.2. So if your normal buy is $100 dollars, a 2.2 reading means buy $220, a 1.8 means buy $180. DCAS is outperforming DCA 3 to 1, and this is where I start to pounce. Does that mean this is the bottom? No. It could still go lower. But this is a roadmap.
Marvell, The Same Tool Says Wait
Compare that to Marvell right now. I just did a Market Minute on this in MM54. DCAS is not giving me any buys up here. So many of you keep telling me you don't own any Marvell, which is why I made that video showing an easy, conservative way to build a position and still preserve your bag for when it is time to pounce. Marvell corrected almost $100 dollars, from $330 down to $235. Beautiful pullback. I bought some stock. I did not buy a modified synthetic long and I did not buy a synthetic long, because the risk-reward is not there when we are up this high. We have not found the huge pullback entry that earns leverage yet. So maybe I take a 1/7 position like I did in MM54, then 2/7 on the next leg down, and I wait for the 200 SMA to deploy my major capital. That patience, buying in increments, is the accumulation discipline I teach in Course 201.
Why I Was Confident On Micro Strategy
So why did I pounce on Micro Strategy and wait on Marvell? Confluence. I used the Micro Strategy IADSS 4 hour chart, and I had confluence buy signals coupled with buy divergence, a lower low. Price made a lower low, but the indicator made a higher low. That is textbook buy divergence, the same setup I teach in Course 201 and used on Solana back in MM23, and it is why I was confident pulling every lever and adding a bit more stock.
Does this mean we cannot go lower? No. It could go lower into October. Summer can be rough, and it is generally not great for crypto. I do not have a crystal ball. But this is the setup where I start to pounce, where I start to deploy more capital. I do not deploy up high. I did not buy anything until we were down here, and these were my first new anchors in Micro Strategy alongside the modified synthetic longs I aggressively rolled/adjusted last week.
That is the whole idea. This is a roadmap for when you trickle into a trade and when you pounce on one. You are never all in at the top and never frozen at the bottom. I hope this was helpful, and thank you so much for watching.