Microstrategy's real game is gamma not delta

[@TheRaizerx]

Man, how tf did I only just find this. The best analysis of mstr so far. Damn interesting and thank you!

[@Ironrodpower]

This is rookie stuff. Like 2 hours of looking at it for noobs

[@LDacic]

@@Ironrodpower never shame people for where they are on their journey.. fucking life noob.

[@mclaughlin2008]

I thought this was one of the most useful explanation for the MSTR craze. It made sense what the Gamma traders were doing. Thanks for posting.

[@Investingformonkeys]

Thanking my charter for helping me understand Mark’s work here. Living in a country where the financial market is still in the mid 90s of the US is quite tough to keep your head straight about things you learnt. As usual, keep up the good work.

[@HSukePup]

This is such a great video, and I wish I understood more of it. Would it be possible to create another MSTR explainer video for less-knowledgeable mortals like us who aren't that technical about options?

[@cjfeat.2631]

This video is really for investors with advanced knowledge in finance (esp. derivatives). I don't know how many fully understands what you said. I learned a lot though still I need to digest more. I may come back with questions. Thank you so much!!!

[@AC-wl7ve]

It’s better to not be knowledgeable in this market. Line goes up, buy stock/token, line continues to go up forever.

[@k-man26]

@@AC-wl7ve bubble talk

[@AC-wl7ve]

@@k-man26 seriously though, some of the dumbest people I know are getting rich with crypto right now lol. My friend got introduced to “space money” as he calls it a few years back and has been dumping his life savings into it ever since.

[@TheWoodenshark]

@@AC-wl7ve The housing market will never collapse

[@dubyam]

Loved the video. What's missing is that Saylor controls the volatility in Bitcoin to a large degree which I think adds a variable to this that isn't yet appreciated (the issuer with one hand on the convert/ATM tap and the other hand buying massive chunks of an (maybe the first) asset with a truly finite supply). With the proceeds from the converts and ATMs he is able to move the Bitcoin price. He can also manipulate the volatility in the stock by hammering the ATM one day, then announcing a huge BTC buy the next. This is a new sport.

[@charlesmiller6281]

Nice fantasy narrative. In fact Saylor uses TWAP to buy BTC without moving the market, same as lots of the bigger players. Converts and ATM are tightly regulated and restricted. If Saylor really was manipulating he'd have been destroyed by the bitcoin hating Biden administration in a nanosecond. But as another one here said low IQ static thinkers like Mark find it easier to make their biased narratives sound plausible than the work it takes to understand what's going on. Saylor's 3Q24 earnings call lays it all out clear and concise as can be in like 4 minutes, so it really shows pure mental laziness.

[@samst.germain6488]

This is too complicated for the crazies to understand. Get ready for the name calling

[@tuckerbugeater]

get ready for the poor house

[@dlukton]

Do you think that MSTR will outperform bitcoin.... or underperform bitcoin.... over the next 6 months? For many investors, the question is as simple as that.

[@dpmonies]

@@dlukton $MSTR will voraciously outperform $BTC. Do not trust this academic. He even claimed the convertible bonds were secured --> they are unsecured. Successful investing does not require fancy math, it requires open-mindedness and solid arithmetic. Mark is a course-selling charlatan that loves the sound of his own voice.

[@lltheFacell]

But you just did the name calling sir

[@LEDit0ut]

I understand what he’s saying. He simply doesn’t understand that bitcoin is volatile and goes up forever. Once you understand that MSTR won’t fail from a financial engineering standpoint.

[@brendonthomas2555]

A very informative video on gamma vs delta that DEFINITELY highlights what's in it for the convertible bond holders and how said holders utilise short positions on MSTR equity to their benefit.. I do find the exclusion of the amount of naked volatility held just within the underlying asset BTC and the potential for BTC's USD value to increase exponentially over 5 years to be a tad disingenuous. Michael Saylor makes it clear that MSTR stock is not for everyone but those game to exposing themselves to 2/3x the volatility of the underlying BTC. Masses of retail FOMOing into MSTR at over $400 - $550 with nil research is what gave shorts an easy win. So what's in it for MSTR longs? The Dec 15th accounting change from balance sheet showing BTC impairment cost to fair value, future inclusion to S&P 500 and Nasdaq 100 that brings guaranteed buy pressure and corporate and national uptake of BTC all bode well.

[@farzad_tahamtani]

These great and detailed explanations from Prof. Meldrum gets me super excited for the upcoming complex schedule modeling section of Applied Series. I hope to get more analyst-style processes to be added to course. Priceless values and lessons are being taught and given in these videos 🙏🏻

[@nialloconnor9686]

The most truthful video ever seen. Saylor can deliver volatility for a while. But when it gets boring BOOM, it's all over. Greatest video ever

[@_-Wade-_]

Why? He survived 16k...

[@dandao5929]

Mark, have you seen who are buying MSTR's convertible bonds? They're fixed income shop that cannot buy equities nor bitcoin. MSTR is offering them a way to get exposure to bitcoin. Sure, there are some people gamma trading, but that is not the whole case. MSTR offers something for everybody: long equities, short equities, fixed income, volatility, options, gamma, delta. MSTR serves all....that is why it is the most traded stock.

[@DepthWish]

There are other BTC ETFs with NAV near equal to share price.

[@espress5964]

it's also literally being encouraged by Saylor to short as well, it really is for everyone right now

[@ai-trading-buddy]

Excellent explanation. But I'd like to correct one thing: All bitcoins are unencumbered (meaning not used as collateral for any debt). I looked up the 10-q filing. That leaves me in a much bigger paradox. Can you please explain the situation based on this new information? Do the bondholders even know that the btc are unencumbered or is MSTR just a memestock for professionals?

[@Josh-xe5vi]

The bond holders would be paid first if MSTR went bankrupt. So yes unencumbered technically, but in reality, IF BTC remained low for an extended periods of time while multiple of these bonds come mature and MSTR couldn't find anyone to roll the bonds too, then bankruptcy is a chance. If they don't get converted by mstr before then anyway, and most are already above the strikes now. Lots of people like mark here don't like new changes to a system they have understood and mastered so they try and influence others to avoid it, so they can continue to have an easier life with out restructuring their mindset. Especially in their later years of life. The brain becomes less elastic.

[@Jayshadys]

Dr, what do think will cause the volatility to dry up in BTC and more importantly MSTR? Please do a video with your thoughts.

[@nonexistent5030]

As bitcoin becomes increasingly integrated into trad fi it has already seen dampening volatility over time. Additionally it becomes increasingly exposed to actions of vol controllers like the FED and treasury.

[@TheBadCode]

@@nonexistent5030 In the long term, it will become increasingly difficult for individual countries to manipulate the Bitcoin price. The FED cannot generate an infinite amount of dollars to create buying pressure on Bitcoin, for example. Bitcoin's volatility will increasingly reflect the global economy in the long term.

[@jc7887]

I watched this when it first came out and I was drinking the kool-aid. I tried not to listen but it stuck with me. Only two weeks later, these words are now getting louder in my head. I think Mark nailed it here and we are about to see it play out.

[@AndrewMueller-x2t]

So glad I found this video! Thank you for making this Mark. I finally understand what is going on here.

[@radier9532]

Can't MicroStrategy deliberately misprice the bonds to appease gamma trading arbitrage funds? The company needs them for the mNAV premium story to retail. By mispricing, the convex call value graph can be above the short position graph for any share price? And yes, the company will of course also try to provide volatility for them.

[@MarkMeldrum]

That is a correct statement. The bond’s calls may have been priced with 70% IV when the market was at 90% to reach that outcome. But that reinforces that this game is for the CB holders.

[@EQR_1995]

You are a beast! Thank you for this

[@TheMoralStasis]

Your original pyramid scheme video on MSTR was one of the funniest things I've seen all month. Its even funnier that people attacked you for it. Your analysis is top notch. Can't wait to see you break down how this bubble pops.

[@DAIIIVA]

its a pyramid but that doesnt mean u cant profit off it dude

[@DAIIIVA]

the whole point of a pyramid is that its a predictable way to make money.

[@tuckerbugeater]

@@DAIIIVA it's a pyramid the goes to the singularity

[@Investingformonkeys]

@@DAIIIVAagain, everyone understands that, no one saying you cant make money. He just said thay the amount of money you earn is based off how many stupidity that goes into the scheme AFTER you r in. He never said u cant make money, he just said it is high correlated with stupidity. Of course, if you can make money by being less stupid than the guy goes in after you, then go ahead and do it and win money. No one is trashing you for making money. He just points out what is going on.

[@Adavarus]

He only accounted for their ATM offerings. Very over simplified model of the company…

[@mahmoudmakkawi2379]

Absolute Masterclass

[@andrewshantz9136]

One thing I did not hear in the discussion is that convert bond holders are buying at basically a 55% premium to the stock price (it’s built into the bond contract) thereby facilitating more BTC per share being bought than those simply buying the stock.

[@dignaga69]

Tldr: MSTR bondholders need the stock price to be very unstable for them to make money. Thats why, if MSTR stock price ever becomes stable, the bondholders will pull out, nobody will buy new bonds, and since MSTR is alr trading at multiples of the BTC it actually has, it will drop very fast.

[@Ironrodpower]

So BTC will stop being volitile?

[@rufuseprobably]

@@Ironrodpower it doesn't matter if MSTR mNAV sharply goes to 1, it will have immediate price compression equal to mNAV

[@ryan5959]

Great video! One of the first that highlights the risks of this stock accurately. The one question I still have that hasn’t been addressed is when FASB takes effect in Q1 how this will effect the socks valuation. At this point BTC will become an asset on the balance sheet with gains accurately accounted for. Typically if a stock is growing revenue by say 60-100% they are assigned a high PE ratio instead of NAV. A REIT like the VNQ trades at a 15-30 PE and holds real estate which is projected to go up over time similar to BTC. What am I missing here? Why should MSTR not be assigned a similar PE after Q1? And also with index inclusion shouldn’t we expect more money to roll into the stock? Thanks!

[@victoreremita5075]

I agree that it’s zero sum. But you assume the costs are borne by shareholders, which follows an unquestioned assumption that BTC price goes down. If Bitcoin price goes up over long term, the costs are borne by dollar and other fiat holders, implicitly short Bitcoin/USD exchange rate. I believe currency speculation can be zero sum in favor of the more valuable currency, and stocks with treasury in that currency win at the expense of stocks and all other holders of the inferior currency

[@victoreremita5075]

I agree that equity is paying bond holders on risk adjusted basis. But that does not change the attractive risk to equity (in my opinion) which is obviously made more attractive by convert bond capital, enabling faster acquisition of bitcoin

[@faitaccompli5878]

Interesting, I think I'll buy more MSTR.

[@nolanofeast]

All i heard was reasons why convertible bond holders will pour more money into bitcoin.

[@chucknorrispka]

I like the stock

[@k-man26]

@@chucknorrispka you're not roaring kitty bro

[@jeff-jo6fs]

@k-man26 hes not your bro, brotha

[@k-man26]

@@jeff-jo6fs good thing I don’t care what you think

[@garyc9402]

Thank you for this video. I thought I knew what convertible arb was, but you filled in some very important few blanks that I didn't know I had.

[@Duke-511]

The logic makes sense if the value of Bitcoin is stagnant

[@luct3368]

Most of the recent shareholders are bitcoiners, who expect large appreciation in btc value. I'm curious how this plays out IF their expectations are correct

[@LEDit0ut]

Information asymmetry is the reason these tradfi heads will explode.

[@CSqrdX]

@@LEDit0ut And you think you're privy to privileged information that powerful institutions do not? Information asymmetry works against the retail investor 🤦‍♂

[@LEDit0ut]

@@CSqrdX yes. 🤷‍♂️ they literally do not understand what makes money valuable.

[@astrogumbo]

value vs price long way to geaux lil duke

[@Lawofkings]

Thanks for putting an intelligent attempt at understanding the trade, and your explanation of the convertible debt trade is great. Matches what I've been learning from our MSTR bulls. It sounds like you spent a lot of time explaining why these bonds would be so valuable to bond buyers. If a company can issue a highly in-demand type of convertible bond, to a captive audience, does that add any value to the only company in the world that is currently offering that bond? Or is MNAV of 1 still fair? If you changed these first principles, how would your analysis change? 1: Bitcoin is actually going to continue doing what it has done since inception, which is suck capital out of the fiat world and increase in value forever. 2: Bitcoin, for the foreseeable future, continues to be very volatile, and MSTR is going to be a higher volatility. Saylor has explicitly advertised "selling vol". This is part of the MSTR thesis, and hardcore bulls are 100% on board with it.

[@Ironrodpower]

You are a very nice person.

[@darimura1]

Matthew, with the new FASB Accounting method due to take effect mid December, MSTR will be able to account for its BTC at current market value. Would this positively affect the price of MSTR?

[@Rubp3600]

No - why would it? When we say that you're buying 3$ bills for 1$, we already take into account the actual value of BTC.

[@EcoLogicality]

think of it this way. If you are only allowed to tell people what you paid for all your stocks, vs if you were allowed to tell them what they were all worth now, would people think you had more money in one of those two ways?

[@darimura1]

To elaborate, the value of cash on hand would double.

[@veghar7920]

Was there anyone basing there calcs on carrying value of BTC?

[@bagholder8079]

Would take issue with the following points: 1. If the volatility shrinks, the stock price doesn't automatically crater - what craters is his ability to roll debt and/or sell more CB's..... 2. When you borrow a billion dollars today due in X years, that is built in short position on FIAT - which is currently compounding at about 14% per year (according to m2) - this is the real leverage in the trade, BTC today for dollars tomorrow..... 3. Even after the 21B/21B issue is completed, the MSTR debt is still collateralized at better than 3-1. This means BTC will have to fall 75% before solvency becomes an issue. Anyone long MSTR accepts the risk of getting wiped out in that world..... 4. It's not existing shareholders throwing the dollar bill for $3 party, It's the new ones, but if you are bullish BTC (and right) even a new shareholder - thanks to the $ short, the BTC yield, and the sale of Vol - will make more scratch in MSTR than plain BTC, and it won't even be close.

[@CSqrdX]

Username checks out 🤣

[@siroccomask]

@@CSqrdX your comment is worthless. if you disagree, can you state your take? it would be nice to hear what you think in response to him.

[@KaustavChaudhuri]

Fantastic video Dr Mark- I have 2 questions - 1) so this trade makes sense if you are a convertible arb fund as you are profiting off the gamma, I assume the convertible bond is priced on a lower volatility versus the stocks current implied volatility in the market right? So it’s a long volatility game there 2) for the stock story - why is there a 300% nav positive gap, the convertible guys will keep the stock price action range bound due to their positive gamma exposure, but is the stock price move up and positive nav gap purely a fomo story? Especially the fact that stock claim is more junior and people are buying bitcoin exposure at a higher price, why would someone just buy it?

[@user-ve3ef5pq4i]

Hi Mark, thank you very much for this explainer. Incredibly elucidating w.r.t. some of the lesser spoken about aspects of this trade. I have one question: is this legal?

[@user-ve3ef5pq4i]

Ok I have one more question: at what level of volatility do you see this unwinding?

[@ArcticCitrus]

Thanks for the content. This increases my resolve as a shareholder in Microstrategy. People like you do not understand bitcoin. Will bitcoin continue to be volatile? Absolutely! What happens when it continues to be volatile as it moves towards 1 million, 10 million, and beyond? The underlying asset is the reserve asset of the Internet economy. Pristine collateral. Those who can wrap their heads around that, and your content, are going to win big. But what percentage of the world understands both bitcoin and Delta neutral trading? Thanks for the info! And study Bitcoin.

[@pennyether8433]

Regarding how the volatility becoming too low is a money loser for the arber -- is the following a correct interpretation? Basically, a lower IV flattens the convexity of the call option.. it approaches becoming a very gentle bend rather than a steep one. Meaning, gamma decreases and you need bigger price movements to win the arb. Or, also just from time decay: If the price moves sideways: As time moves forward, the call delta decreases. The arber has to increase the delta of the short position by covering -- and if the price didn't move enough, they will do so at loss. If the price goes up, but too slowly: For the purposes of simplicity in this example, we can assume the call delta stays the same. Call value decreases, short position loses value due to price going up. If the price goes down, but too slowly: Short position makes money (and you short more due to lower call delta), but call value drops by more due to time decay.

[@kricketts4348]

There are worlds where I don't live but it's fun to visit. Brain broke.

[@Gladvillain]

This is the only contrarian take that makes sense. Stock investing is speculative and the appetite for r/r for speculation is up to the individual investor. The volitilty is also what attracts speculative traders. I'm remaining long but I can acknowledge that shorts have been eating since last Thursday. The part about the timed short report was really good. Never considered that😂

[@GV2ZD]

Greatly appreciate this objective analysis - No position, just curious about what is going on underneath the narratives. Happy to discover this channel.

[@pfog977]

Thanks Mark! I watched your first video, did my own research, formed my own opinion, incorporating your thought process, and decided to open a short position last week. I’ve been very profitable so far!

[@exVerdar]

😂😂 dude don’t get carried away

[@ralphmcd]

To be fair, a short position is also playing the delta game. You might win or lose, but some is down to luck. I guess if you think the bubble will burst soon then it makes sense, but Mark said he had no idea how long this could go on for. In other words, the market can remain irrational for longer than you can remain solvent.

[@jackthehatphoto]

Now do it again. I dare you.

[@pfog977]

@@jackthehatphotoI did, and it’s been glorious today 😂

[@pfog977]

@@ralphmcdVery true- although this is just in my fun speculative account and I will remain solvent. I knew the market would return to rationality. Before I got CLOSE to solvency

[@toh487]

This is great content. My takeaway is that trading the mnav is better than simply hodling because when the music stops, 1x nav may be what mstr will tend to. Thanks

[@rjpeasgood]

The very end of the video is just wrong, no one should try to do what you said. While you physically can dynamic delta hedge a long call and it mimics what is happening you will most likely lose money. The call is going to be fairly priced based on the expected volatility over the duration of the call and you are going to have trading costs associated with buying the options and shorting shares as well as slippage. The reason the convertible bonds are so good for the bond holders is because they are basically underpriced call options. The cost they are paying is basically the risk free rate of the leveraged position, the cost to borrow ((1 - delta) * bond amount) over the duration of the bond under the assumption they get the money back at the end or the bond actually converts to cover their short position. This is obviously significantly less than actually buying the equivalent amount of delta of MSTR call options.

[@MarkMeldrum]

The Gamma Trading video I posted yesterday does show you how to do this. That was the goal - it does not say you should do this. The Applied Level is basically the CFA curriculum - applied. To get a better understanding of something, seeing how it is done can open the mind - that does not mean it can or should be done by the retail investor. But, in seeing how it is done, the retail investor gains a better understanding of the nature of the game and the dynamics unfolding in the share price movements. For example, now that you know how to play the game, if someone did want a long delta position, they would understand the best entry point is after a prolonged pullback with dropping volatility since both management and the CB holders would be motivated to get vol higher again. It would by unwise to buy on rising prices, especially prices that have moved in one direction for a period of time. In other words, it may look like momentum, but it is not.

[@ansa5124]

@@MarkMeldrum do you know how much of the daily trading volume the arbitrageurs account for? I doubt its just them moving the stock.

[@trayvordemonslayer]

This is incredibly useful info, i instantly subscribed

[@Wyckoff_ape]

Great video, it helps me understand why the covered call funds like MSTY perform relatively consistently, MSTR is designed for such trading, not for the buy and hold stock traders.

[@QGDeclined]

Thank you for making this video, very informative and insightful. I've been monetizing the volatility myself through the equity, but I know the music will stop eventually. It's a bit of a fun game seeing how low I can adjust my effective cost basis scalping theta and vol. While this video may be ignored by the rabid bulls, this mercenary trader appreciates your sober run-down of all the players in this game and their intent. So easy to get distracted in all the hysteria and high returns. Focus is re-focused, thanks for the reminder. "Go on, take the money and run."

[@dhagos]

Great video. Made it simple as you can. Question regarding what happens if the price doesn't move? Do the bond holders have to cover their short and back out, or do they take a hit? Trying to understand the risk to this trade.

[@copycatt2579]

Most of my net worth is currently in MSTR. I am obviously a huge MSTR bull. I appreciate the insight into the details of how this trade works behind the scenes. If I was to sum it up its volility is keeping the trade alive because that is the reason MSTR is able to raise money. With that being said, mstr loosely tracks BTC and BTC is already extremely volatile. This means MSTR has plenty of fuel to keep this going as long as BTC remains volatile. I see this more as a short term trade to ride the BTC wave up and then pivot. But I dont see this as a pyramid scheme as MSTR could change their strategy as volility dries up in the future. It’s not like volility will just abruptly end. Doing larger and larger converts / ATMs is not a requirement to keep MSTR alive. As volility wanes, nav drifts towards 1. But by that time MSTR will have a TON of bitcoin.

[@Ironrodpower]

AND will BTC stop being so Volitile??? Well a little. As the market cap Grows it will be more stable but we have a very very long runway.

[@lll.l-k6q]

Thank you for the video. Do you think there is a possibility that volatility reduces based on new products in the market such as the ETF options that just became available.

[@mikesmacedo]

Hi Dr. Mark, in the news release, it should be declared that the convertible debt holders will also be taking short positions. what are your thoughts?

[@CoenraadScheepers-yi3rc]

Why should it be declared? You can't expect them to declare how they are going to hedge there position subsequent to purchase. Besides it wouldn't even be possible, considering that the amount of shards they end up shorting is dynamic based on delta movement.

[@AaronKreider]

Not sure what the floor is, but the bond holders should be prepared for a 85% drop in bitcoin (based on historical trends of bitcoin and a lot of other bubbles - like the US tech/comm bubble, Taiwan stock, and Japanese stock bubbles).

[@paulstanton2124]

love the basketball/soccer analogy, great .

[@patrickp8315]

30:05 "The convertible bond holders will gladly roll over". Does it mean that we have to watch out for dates that the bond holders could decide to whether to convert to roll over? I think those those dates are in the next 4-5 years because they're 5 year bond.

[@cjberina]

Yikes, this video is missing some key factors... and that's the price of Bitcoin going up. Most of this video is if Bitcoin does not go up. Convertible bonds will still convert and when the price goes up even if they wanted to or not, then they will buy more. And they will still make money.The time to expiration is in 2029 on some of these. Bitcoin will not drop 50% with the lack of supply and high demand right now. He's saying new shares will dilute, but it's actually accretive. He's saying Bitcoin doesn't make any money or generate income. They own 402,100 Bitcoin. When the price of Bitcoin goes up to $125,000 which we could see in the next month, for a $25,000 gain multiplied by 402,100 it is a $10,000,000 billion dollar gain, which will shoot the price up, making more bonds convert, which allows MSTR raise more for new bonds. This video doesn't factor the price of Bitcoin going up at all. I'd do more research before you decide to short this.

[@MrDeadlyCrow]

They just announced buying like 5.5bln worth of bitcoin near ATH... and according to their analysis, BTC is going above 200k in 2026. :D They feed the volatility and that's maybe answer for your video and try to balance the stock price. I saw many mentions on Twitter about you in regards of MicroStrategy. Your MicroStrategy pyramid screenshot became a meme/icon. : ) I'm sure you saw this as well.

[@BoonTee]

Great video! Thanks for putting this up!

[@AlessandroOrlandi83]

This explanation was really amazing. Thanks for sharing. I was asking myself what he was doing was too good to be true!

[@netizenkane2230]

Awesome lesson! Thanks. Liked and subscribed.

[@dlukton]

I didn't understand all of that; but I think the price of MSTR stock will be a lot higher in 6 months than it is now.

[@k-man26]

that's because you're dumb

[@luct3368]

well, theres a sell signal.

[@dlukton]

@luct3368 are you calling a top in MSTR... right here, right now? And are you brave enough to short it?

[@dlukton]

@RM_Trade_Co no, because there'll be several corrections along the way, and that'll cause the call options to expire worthless. I'd rather just go with the "fix it and forget it" strategy... for the next several months. That said, I expect a very nasty bear market to begin (in MSTR) some time within the next 12 months.

[@HariSeldonIsBack]

Great explanation. I have to watch a second time (if not more) to make sure I get. If the strike price of the Convertible Bonds are reached, is the option triggered there and then or does that only happen at maturity? In either case, can we not use this information to know when there will be selling pressure (as the CB holders who now have MSTR shares dump their new holding to get their cash back)? If so, would this not create a whole bunch of volatility in itself?

[@MdKLiTHiuM]

36:40 The rapid selling of Share Based Compensation is shocking. Thank you for letting us know.

[@mandolorian25]

Mark he said he’s packaging the volatility. Everyone knows that bitcoin is vey volatile. He’s saying MSTR is much more volatile than bitcoin. The shareholder sells call premiums

[@reaper199116]

You are amazing! But this has to collapse soon right? It is unsustainable long term

[@OxymoronicTonic]

Thank you for the explanation Mark. A complex subject I’m still trying to get my head around. I missed the MSTR trade but invested in mining stock and they are being suppressed atm with 20% short positions, is this also a reflection of the Gamma trade you’ve taken the time to express? Can i expect the massive bond market to keep shorting miners until this trade unravels? Also if the Nav got too high would shareholders not rotate out into other companies offering the same trade with lower nav?

[@AntedUpEntertainment]

So, Mark, this is basically AMC 2.0 with their ape units, except it's now convertible notes secured by BTC acquisition?

[@Roscoe0494]

Fascinating video. We don't see many stocks where the objective isn't growing quarterly earnings. There is a presumption that this company will last and that should depend on Bitcoin going up in value not down. As Bitcoin has its own volatility function it could essentially sustain the volatility and the share price even as the shareholders are theoretically ripped off. And that all depends on bitcoin continuing to climb in value as it is predicted to do.

[@Jayshadys]

Very good explanation much better than the pyramid video.

[@MrNEG1986]

@Mark Meldrum At 32:38 you talk about a situation where convexity drops and what that means. You then state that there will be a new arbitrage opportunity, where shortsellers would go long btc and short mstr. I understand going short mstr, but I don't understand why someone would then also go long btc? You say at 33:15 that btc needs to be sold to pay back all/some of the bonds if the jig is up. If they are going to sell btc wouldn't that mean that btc will be going down as well? Thank you in advance.

[@ACzechManGoingHisOwnWay]

Your bet is a disappearing gap between MSTR and BTC price, not just MSTR going down. The gap can disappear (the trade be profitable) even with MSTR going up in price - which would not be the case of a plain MSTR short. Something along those lines.

[@r0land014]

@@ACzechManGoingHisOwnWay pretty obvious going long, you snap up all MSTR liquidations at a bargain then wait for the next bull run.

[@jordanfong4255]

I dont fully understand your videos, but I appreciate you taking the time to share your knowledge

[@dpmonies]

It's not knowledge, it's course shilling charlatanism. Stop feeding the beast.

[@jordanfong4255]

@@dpmonies If you have any understanding of the stock market and economics you would understand a fraction of what he is talking about. If you dont find value in this content just ignore it then lmfao

[@dpmonies]

@jordanfong4255 I have an undergrad in bus admin w/ a finance major. I have been in the capital markets since 2011. I have so far turned 125k cad into 4.2m cad buying long dated call options on MSTR since as early as late 2022. I know the difference between a real investor and talker. But fine, if you prefer gushing over someone who just sounds smart and earns a living selling courses, have at it. Personally, I have problem with people like that, esp when bitcoin and mstr have the power to generate real new wealth for those willing to put in the work. This guy has a major following and he's abusing it.

[@buck3843]

Mark, you had a nice explanation of how an arb on the convertible securities could work in theory, but for the MicroStrategy 0% Convertible Senior Notes Due 2029 the conversion rate is 1.4872 shares per $1,000 principal which works out to $672.40 share conversion price while the stock was trading at $433.79 on Nov 19 when the bonds were issued. How would the convertible purchaser arb the $238.61 differential ($672.40 - $433.79) by shorting the stock as you had shown in your example?

[@willchen2k]

you need to have a basic understanding of how dynamic delta hedging and gamma trading, then you won't be asking the above question. or even the basic understanding of black scholes formula and the relationship of change in delta vs gamma...

[@user-xs3ly6wj1c]

MSTR will trigger a tulip mania on bitcoin, and it will incur a bubble burst too, the only matter is when

[@Drew-Meade]

Thank you for making this video Mark!

[@robinlox99]

Great breakdown of what's really going on underneath the petticoats. MSTR buying BTC is great for BTC holders ofc, and MS goes to town on the promotion and spiel, but boy oh boy, i see MSTR coming unstuck in a major way, its not if but when imo.

[@ipo8932]

Great great video. One question, when the shares price goes up, call price increases more than the shares due to positive gamma, do you sell calls to lock in the profit while lowering the delta to maintain neutral? Or you simple short more shares? When do you realize the gain?

[@MarkMeldrum]

On the way up, the call delta increases, so short more shares. On the way down, delta decreases, so cover the short shares at a lower price. Repeat.

[@ipo8932]

⁠@@MarkMeldrumthanks for the reply. Correct me if I'm wrong, so they only realize the gain when the share drops? Do they not touch their call options at all? I traded mstr options in the last couple of days and i noticed a huge drop in IV for these calls this week. If bond buyers didn't sell those call options to the realize the gains, it's possible that they loses more on those call options than the gains on covering the shorts.

[@arthurkorff]

Sounds like profits are taken on short covering So options are rolled over until shorts are covered ... maybe I'm wrong ... I'm dumb ... but that's why the volatility is vital.

[@ipo8932]

@@arthurkorff probably. I got the idea of long gamma but i just want to figure out when they they realized the profit as that's the most important step. I can speak from experience that if the bond holders didn't lock in the profit when mstr hit $540 with 230 iv, they will for sure lost a fair amount of money, mainly due to the huge decrease in IV. Yes they maintained delta neutral with long gamma and but the bigger problem is that their call options lost more value due to the iv crush. The 2025/01/17 $760 call hit $10000 at one point and current it's at $3000. Huge part of that $7000 difference is driven by vega.

[@arthurkorff]

@markmeldrum

[@John-hg3kp]

This is a very thorough explanation. Thank you. I shorted MSTR around 260 and covered at 220. I'm glad to not get burned on this

[@NémethÁdámBefektetés]

The thing with shorting a stock like this is that the stock can rise if mass uninformed people invest in it. Since they think that it's leveraged BTC. I personally like Michael Saylor as a BTC maximalist, but this stock is just a huge bait for the average investor who wants crypto exposure. Especially since he is a nonstop guest at CNBC.

[@marktube4377]

@@NémethÁdámBefektetésThis stock outperformed every stock in the SNP500 in the last 4 years. What are you talking about?

[@simonp6339]

You are very lucky that you didn't get burned on your short, because most tradfi guys including Meldrum don't understand the stock or the asset behind it. MSTR is short dollars, long BTC, it's a very simple play. About every third dollar that exists today was printed after 2020.

[@derekcheney5186]

Dr Meldrum, is there a scenario where the bondholders pay a premium for the coupon? I know the idea seems ridicoulous but Im just trying to game this out and see if theres any scenario where this doesnt end in tears for retail.. I know MSTR would still have to overcome the weight of the value destroying business, Saylor and friends raiding the piggy bank with huge SBC awards but is the idea even possible? Ive never heard of it but I also have never heard of a company borrowing money to buy an asset that doesnt generate a return.

[@sanesanyo]

Well you can receive a coupon but then you will have to pay a different price for the bond. In the end, the price of the convertible bond will depend upon the coupon, strike price & maturity of the convertible bond. The price can be above par or below par depending upon all these factors.

[@faitaccompli5878]

The price of Bitcoin has increased, price appreciation of an asset is a return.

[@bryceeller2742]

Aren't the convertible bond holders taking a risk that Microstrategy won't go to zero and the value of its bitcoin won't be high enough to pay back the principal? If the company is selling dollar bills for three dollars, that means investors have put more in than the intrinsic value of the company. When it goes to bankruptcy, even the senior claims might not be entirely fulfilled right?

[@arthurkorff]

Your cynicism is refreshing. Thank you for dark mode.

[@TrAppErZImDonE]

I’m 29 minutes in but if I’m getting this correct the more bonds converted into shares dampens gamma vol/overall vol due to the increase of overall shares making it harder for those traders to make money and it’s a circle…

[@culturewarp4668]

I see what the bond holders get out of this, and I understand the situation the equity holders are in, but what does Microstrategy get in the deal? A transaction fee for the bond sale? Or, just the Bitcoin on the balance sheet, which they believe will increase in value over time? That is what the equity holders are buying for, and perhaps the hop that MicroStrategy can leverage all that BTC to generate more value for the equity holders down the road? It seems holding all that Bitcoin ought to have *some* value or opportunity down the road, which would ultimately benefit the equity holders too, no?

[@okgood8529]

Now I'm bummed that I've made such a fortune off of MSTR. Should I give it back?

[@dadafros]

Let me ask you this (honest question) do you think Allianz, for example, is gamma trading MSTR?

[@MarkMeldrum]

Pension funds, endowments, foundations - all have increased exposure to alternative assets in the last 10-20 years. So having exposure to convertible arb would not be out of line. Whether they manage the arb internally or externally is another question - but if it’s convertible debt with no coupon, it is most likely arb, and if it’s arb, then yes - that is a gamma game and they will play it as such.

[@vb7869]

Would a super fast and aggressive drop in BTC price potentially cause issues to pay out the credit? Also what about the scenario if BTC price is too high that the credits stop providing strong purchasing power?

[@Ironrodpower]

BTC would need to be below 20k say in the years the bonds convert. They have staggered the Convert years. Very Very small chance this happens. Certanily a risk however.

[@haochen537]

Hi Mark, thanks for making the videos! What are your thoughts on just buying the spot bitcoin? Thanks!

[@tantricsurfer]

This is a masterpiece! Mark, is it possibile to find these contents in your courses?

[@MarkMeldrum]

Yes. That is the whole point of the Applied Level.

[@marktube4377]

Pay him to stay poor 😴

[@pennyether8433]

Quick question: The notes are for like 4 years out, with IV at call it 150%, and a 50% premium on the strike price... that delta comes to very close to 1. Isn't it less than ideal to be playing the arb at such a high delta?

[@gragnaktube]

If the volatility of MicroStrategy is caused by the leverage (selling bonds), then the bond buyers are creating their own volatility, which just proves it's a scalable strategy.

[@MarkMeldrum]

No. Paradoxically the CB hedging activity actually reduces volatility. Volatility is created by the delta traders. They are MSTR’s operating asset. And like all operating assets, they are seen as depreciable by management with a salvage value of zero if necessary, a cost of doing business.

[@busessuck1]

​@@MarkMeldrumso funny how people don't get this... Gamma trade meme names and make money till the music stops

[@busessuck1]

newtons law of thermodynamics applies no matter how complicated the reaction

[@dpmonies]

​@@MarkMeldrumfalse.

[@marktube4377]

@@MarkMeldrum What a normie you are Mate.

[@ipo8932]

For the convexity chart, why would the bond price/call option value be lower than the stock price if it doesn't move? Is it due to theta decay or something?

[@mapacime]

Very well done. You just forget that when the prices goes down, the reward for the shareholders goes UP, then this volatilitie never ends... ! Fucking Magic!

[@victoreremita5075]

The idea that Bitcoin price is random is so obviously false, as it outperforms every asset class over any period

[@Cashmoney11111]

Um.... do you understand what BITCOIN is? Do you understand what finite finality represents in your assumptions? This math is based on a tradfi understanding of capital markets with the possibility to infinite share issuance. You need to study the denominator (Bitcoin) for 1000 hours before you get it. Nice try, but no cigar my friend.

[@goobtron]

Brilliant, but if MSTR shareholders are the ones losing (due to dilution) and the BTC per share is still increasing, is it really that bad for shareholders?

[@timecrash85]

Why don't you just buy BTC?

[@goobtron]

@ the answer is clear if you look at the price chart

[@DataLog]

I did have a contrary opinion last week, and I did make my own video touching on your video, but don't get it wrong, I appereciated your video because what you explained was helpful and useful. We don't disagree on technicalities, we disagree on the future. But the mechanisms you are showing are important and valid. I just disagree with some of your conclusions. Please take in consideration my point that actually nobody can win this game, and that hedging Microstrategy simply can't work practically. You do also have to consider the type of people who are holding MSTR stock. It is quite possible that none of these sorts end up profitable for those who hedge, and will soon be seen as the stock premium to NAV again.

[@lorddrake2418]

Incredible explaination. I have a huge amount to learn. Wow.

[@Chessspecialist]

The idea of Bitcoin as reserve currency has been destroyed by their greed. Microstrategy couldn't be satisfied with the incredible returns of being pioneers but had to give the power back to the centralized system their shareholders were fighting with bitcoin.

[@montramedia]

if you buy MSTR you make the bond holder and MSTR more rich. This allows MSTR to get bitcoin for free. When bonds convert the debt is paid and MSTR keeps the coin. this only works if we buy MSTR. also MSTR is a failing company this is the grand exit. Saylor has been found guilty of cooking the books in the past. new edit: i just realized if MSTR price crashed they could buy back their own shares and offer more bonds. which could keep the cycle going.

[@youaskforit]

If the volatility is low, does that mean bitcoin is finally at such a huge market cap (like gold for example) that it wouldn't move a lot even if you bought billions?

[@Matthew-vt5dt]

The GOAT!

[@HaineGratuite]

great video but I didn't really understand how they agree on what the strike is at issuance

[@emanuelevisentin1583]

@MarkMeldrum maybe a stupid question, but isn't already happening this overvaluation because people is somehow stupid and don't understand what you just explained? (btw thank you! brilliant explanation and I got everything) So my pount would be, is it possible that this craziness continues until BTC goes up, so you're still making more than going leverage with options only because of mass' stupidity as you also said in your first video about MSTR? This would be of course a bet and not an investment, but sometimes, intuitions with reasonable amounts of money at risk, pay off well!

[@Lexis.options]

This was a fantastic video!

[@MrMrMrMrT]

by definition Mark aren't Warren Buffet and others Delta traders?

[@ralphmcd]

Warren Buffett is a fundamentals investor not a trader at all. And I don’t think mark is saying all delta trades are bad, just this one

[@MarkMeldrum]

My message is don’t be a delta trader in a gamma game. Almost all stocks are delta games. This one is not. In no way was I implying that all stocks are gamma trades.

[@MrMrMrMrT]

@ I’m tracking now!

[@chucknorrispka]

Bitcoin has negative Vanna which is why MSTR is able to rely on perpetual volatility and sell it as convertible notes. I see them as having a lot of runway here on this volatility selling spree they're on. The price today will be higher tomorrow even if they were to come down to 1:1 mNAV when it's all said and done.

[@ipo8932]

what if btc keeps rising? In that case what would happen to mstr? It seems that you think this company would disappear when iv drops to a level where no one wants to buy their convertible bonds