MicroStrategy exploits Bitcoin optimism to drive volatility, risking shareholders’ and bondholders’ wealth.

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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.
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