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Last week ALONE, MSTR saw $136 BILLION of trading volume. To put this into perspective, not even GameStop, GME, has a week with volume that was remotely close. Things are going to get even more wild as we look ahead. So what does MicroStrategy do? To start, the recent run in MicroStrategy’s stock has NOTHING to do with its underlying business. Below is a chart showing $MSTR’s annual and quarterly revenue since 2010. The underlying business has effectively been in a linear decline for a decade now. So what is MicroStrategy even doing? At a high level, the company has effectively become a proxy for buying Bitcoin. The company issues debt and uses the proceeds to buy Bitcoin which then drives the price of Bitcoin higher. Then the cycle repeats. Most recently, the company’s CEO, Michael Saylor, announced a $3 BILLION convertible note offering. Here’s the craziest part: the notes were offered with a 0% coupon. Investors lent money to MicroStrategy at ZERO percent interest. The notes have a strike price of $672. In other words, the notes are priced at a 55% premium to MSTR’s share price. This means that investors in these bonds ONLY get paid of MSTR rises above $672. At a high level, this appears to be a complete rip off, but we must compare this to pricing of options on the stock. With the convertible note offering, investors are effectively buying a call option on MSTR with a $672 strike and 2029 expiration date. The difficult part is computing what the zero coupon bond is actually worth. Assume a large coupon of 10% and the call is priced at 38%. Now, let’s take a look at options pricing on MSTR. The furthest possible expiration date on MSTR $670 calls is January 2027, trading at ~$230. That’s a ~55% premium for calls that expire 2.5 years SOONER than the convertible bonds. This makes the notes seem cheap. However, the counter argument here is that everything is overpriced and the options are even more overpriced. The implied volatility yon these calls which are 782 DAYS out is a whopping 107% Needless to say, there is no “cheap” way to play this stock through options. Now to the biggest question, why buy MicroStrategy if you want exposure to Bitcoin instead of Bitcoin itself? Saylor answered this on an X space and said “the people that buy the bonds can’t buy Bitcoin directly.” He says they are investors like 401Ks that cannot buy Bitcoin. https://reddit.com/link/1gyvkao/video/1vxbyqmpqv2e1/player Many claim that when buying MSTR, you are effectively paying a “premium” to buy Bitcoin. Saylor says that is like saying oil companies should only trade based on their oil reserves. Just as oil needs to be refined into gasoline, he says MSTR does the same for Bitcoin. In summary, MicroStrategy’s strategy is reliant on cheap debt offerings:
How long can this cycle go on? Bulls will argue that Saylor has transformed the business world and all companies should begin buying Bitcoin. Bears will argue that this is a textbook Ponzi scheme with an inevitable collapse when capital dries up. Regardless, MSTR is now having a market-wide impact. submitted by /u/XGramatik |
💡📊🤓 I think this logic may be useful for those who trade using Technical Analysis
submitted by /u/Yuriy_UK [link] [comments]