MSTR’s issuance relies on NAV premium and implied volatility, which would flatten without them.
TLDR:
- MSTR sells shares at 2.3x NAV, making the sale accretive by buying BTC at a premium.
- Convertible bonds sold with 65% delta offer 1.5 BTC of buying power from the delta.
- Convertibles priced at 100 implied volatility, 13% premium over fair volatility (65).
- This makes the convertible accretive at 1.69x (1.5 BTC * 1.13 premium).
- Convertible bond arbitrageurs may view 100 volatility as cheap or sell vol to call buyers.
- If NAV premium were zero:
- Stock issuance becomes neutral.
- Convertible bond delta becomes neutral.
- Option premium could still be rich, but accretion drops to 1.13x.
- The key is the NAV premium and questionable convert implied volatility premium.
The entire strategy works because MSTR’s stock is trading far above its NAV. If the stock price falls to match the real value of the Bitcoin it owns, this “magic trick” stops working. Agree. Selling shares wouldn’t bring in extra Bitcoin. Convertible bonds wouldn’t benefit from…
— Ryan (@Section31ops) December 10, 2024
"At the MicroStrategy table, shareholders are the sucker"
Idk if this is right or wrong. But I do know that MicroStrategy owns more than 1% of all the BTC in the world.
It's worth understanding all the risks of this bet.
Nicely done @bgilliam1982 pic.twitter.com/qHsxDuwZsf
— Yano 🟪 (@JasonYanowitz) December 10, 2024
MicroStrategy $mstr is preying on investors. They are pumping up optimism on Bitcoin to drive higher volatility in their stock. Doing so allows them to raise funds and add to their Bitcoin holdings. Its convertible funding strategy is legal, but the risks to its shareholders and…
— Michael Lebowitz, CFA (@michaellebowitz) December 11, 2024
Its almost like BTC is based on collective stupidity pic.twitter.com/K6QdrdzHG4
— Darth Powell (@VladTheInflator) December 11, 2024
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