Microstrategy's real game is gamma not delta

00:41:32
https://www.youtube.com/watch?v=j_6URnhtQ2U

Ringkasan

TLDRThe video delves into investment strategies on both the buy and sell sides, emphasizing the approach to buy-side modeling using Canadian apartment REITs. A significant portion concentrates on explaining convertible bond strategies, particularly involving MicroStrategy stocks. It underscores the mechanism of gamma trading, where investors gain from volatility rather than the direction of stock prices. The presenter critiques the interplay between MicroStrategy's business acts, their convertible bonds, and the implications of market inefficiencies. They highlight the risks for regular investors misunderstanding the volatility-focused game played by seasoned bondholders and its impact on share value. The commentary suggests that the financial narrative presented by MicroStrategy involves feeding shareholder misinformation while harnessing market inefficiencies for bondholder benefits, warning of volatility decline leading to stock price collapses.

Takeaways

  • 📈 Buy-side modeling involves analyzing a vast number of stocks, unlike sell-side modeling.
  • 🏢 Canadian apartment REITs are used to demonstrate buy-side stock picking techniques.
  • 🔄 Gamma trading exploits price volatility rather than relying solely on market direction.
  • 💼 Convertible bonds can be used by investors to benefit from high volatility, as seen with MicroStrategy shares.
  • 🤔 MicroStrategy's stock strategies seem complex, involving misinformation to shareholders.
  • 🚫 Decline in volatility can lead to drastic reductions in stock prices, affecting shareholders adversely.
  • 💲 Bondholders take advantage of low-interest convertible bonds for market gains.
  • 📉 The short rebate plays a crucial role in convertible bond profitability.
  • 🔍 Market inefficiencies are exploited through straightforward arbitrage strategies.
  • 🧾 Convertible bondholders capitalize on being senior to equity in asset claims.

Garis waktu

  • 00:00:00 - 00:05:00

    Summary of key differences between buy-side and sell-side modeling, focusing on Canadian apartment REITs for stock picking; future video on options and gamma trading with convertible bonds; new course sections and subscription discounts starting January 15th.

  • 00:05:00 - 00:10:00

    Discussion of incoming aggressive comments from audience on convertible bonds and market strategy, transition of audience reaction from scoffs to anger due to losing money; explanation of delta trading risks and improper game analogy.

  • 00:10:00 - 00:15:00

    Explanation of convertible arbitrage involving long positions in senior security and short positions in junior security; emphasis on volatility as a key factor, with convertible bonds having low coupon rates due to high volatility, and potential forced conversion situation.

  • 00:15:00 - 00:20:00

    Insight into motivations for convertible bondholders, debunking beliefs about conversion feature importance; providing example of market inefficiency trades between Bitcoin and micro strategy based on volatility disparities.

  • 00:20:00 - 00:25:00

    Details on how convertible bondholders profit through volatility trading, short rebates, and embedded call options' convexity; understanding the significance of gamma trading in such financial positions and the safety from Bitcoin's fluctuating value.

  • 00:25:00 - 00:30:00

    Further clarification on gamma trading mechanics, including the systematic trading approach to cover market movements and convertibles' positioning strategy; debunking shareholder's misconception about bondholders wanting share conversions.

  • 00:30:00 - 00:35:00

    Potential outcomes for convertible bond scenarios, highlighting market positions' safety the volatility provides, alongside an evaluation of capital preservation tactics for bondholders using over-collateralization strategies.

  • 00:35:00 - 00:41:32

    Final analysis of MicroStrategy's operational model as a mechanism to sell volatility and maintain stock price through engineered volatility, deceptive shareholder strategies, and the ongoing issuance of equity and convertible bonds to sustain the financial game.

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Peta Pikiran

Video Tanya Jawab

  • What is the difference between buy-side and sell-side modeling?

    Sell-side modeling covers a smaller universe of stocks, while buy-side has to analyze hundreds. The video uses Canadian apartment REITs for illustration.

  • What is gamma trading?

    Gamma trading involves benefiting from price volatility rather than price direction, often using convertible bonds or options.

  • Why do bondholders participate in buying MicroStrategy's convertible bonds?

    Bondholders benefit from the high price volatility associated with MicroStrategy's stock, which offers opportunities for gamma trading.

  • What is the role of a Delta Trader in the video?

    Delta Traders focus on buying shares with the expectation of a price increase, but may not understand the underlying volatility-driven games played by the bondholders.

  • How do convertible bonds make money from volatility?

    Convertible bondholders capitalize on the price swings of underlyng securities without concern for their actual market value.

  • What are the implications of declining volatility on MicroStrategy's stock?

    If volatility decreases, the support for high stock prices could collapse, leading to potential financial trouble for equity investors.

  • Why is the short rebate mentioned in the context of convertible bonds?

    The short rebate refers to the interest bondholders earn from short selling stock, contributing to their earnings from the overall strategy.

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Gulir Otomatis:
  • 00:00:00
    [Music]
  • 00:00:06
    okay before we head in this week uh few
  • 00:00:08
    notes for the applied level tomorrow uh
  • 00:00:11
    is week one for buy side modeling uh
  • 00:00:14
    here we're going to use apartment reats
  • 00:00:16
    specifically out of Canada buy side uh
  • 00:00:19
    modeling includes uh first of all stock
  • 00:00:22
    picking uh then a deeper dive we'll see
  • 00:00:24
    how that is done there is a difference
  • 00:00:26
    between sell-side modeling and buy side
  • 00:00:29
    modeling
  • 00:00:30
    uh the sell side usually has a small
  • 00:00:33
    Universe buy side has to go through
  • 00:00:35
    hundreds of stocks right how do we get
  • 00:00:37
    that done we'll use Canadian apartment
  • 00:00:39
    reats uh to get that done or apartment
  • 00:00:42
    reats in Canada I don't want to say
  • 00:00:43
    Canadian apartment reats because that's
  • 00:00:44
    a name of a reat also uh tomorrow in the
  • 00:00:47
    applied options folder uh in the
  • 00:00:50
    volatility folder I will put up a video
  • 00:00:54
    on gamma trading uh on micro strategy
  • 00:00:56
    shares which is the game that is being
  • 00:00:58
    played by the convertible Bond holders
  • 00:01:00
    you should know uh how they play the
  • 00:01:02
    game you can play the game too I'll show
  • 00:01:04
    you how although it's not for the faint
  • 00:01:07
    of heart um January 15th uh the applied
  • 00:01:11
    level is splitting into two sections
  • 00:01:13
    applied analysis and applied Asset
  • 00:01:15
    Management 425 each this begins January
  • 00:01:18
    15th if you have CFA level one standing
  • 00:01:20
    you get $100 off each one if you are a
  • 00:01:23
    mark melon.com subscriber you get
  • 00:01:25
    another 50 off so you're down to 275 on
  • 00:01:29
    on uh on on each one uh for um uh for
  • 00:01:34
    each of these I will most likely uh
  • 00:01:36
    extend this discount the $100 discount
  • 00:01:40
    if you have any frm standing or any CIA
  • 00:01:44
    standing um we do have an frm
  • 00:01:47
    subscription on our site uh it this may
  • 00:01:50
    also apply to you I don't know but I
  • 00:01:53
    probably will extend the $100 discount
  • 00:01:55
    if you have any standing in frm or
  • 00:01:58
    CIA uh starting uh January 15th these
  • 00:02:01
    are one-year subscriptions so uh from
  • 00:02:04
    January 15th to January 15th of the next
  • 00:02:06
    year you get access to the entire
  • 00:02:08
    content plus any new content I put up as
  • 00:02:11
    of this date uh you have access forever
  • 00:02:14
    except you uh the new content uh would
  • 00:02:17
    no longer get added but whatever you
  • 00:02:19
    have as of this date you would have um
  • 00:02:22
    if you want new content after that it's
  • 00:02:24
    a $25 uh a month recurring fee uh after
  • 00:02:28
    that to continually get new content
  • 00:02:30
    um the um January 14th uh will be the
  • 00:02:34
    end of the applied level at 440 or 320
  • 00:02:37
    320 is the $100 uh sorry the 120 off if
  • 00:02:41
    you have um CFA level standing uh all
  • 00:02:45
    subs up to January 15th you will have
  • 00:02:48
    lifetime access no further fees uh which
  • 00:02:50
    means you'll always continue to get the
  • 00:02:52
    new stuff forever and ever it will never
  • 00:02:54
    end uh and if you um um are in before
  • 00:02:59
    the price prices change you're good none
  • 00:03:01
    of this applies to you after that then
  • 00:03:03
    yes uh this is the uh the new series
  • 00:03:06
    because um a significant amount of value
  • 00:03:09
    has been added to the applied level at
  • 00:03:11
    this point that uh this price just
  • 00:03:14
    doesn't reflect uh doesn't reflect the
  • 00:03:16
    sheer amount of value that's in there
  • 00:03:18
    now okay uh let's head in last week I
  • 00:03:22
    talked about uh micro strategy I'm going
  • 00:03:24
    to continue it on this week but we're
  • 00:03:26
    going to go into uh detail about what
  • 00:03:30
    the convertible bonds are doing some of
  • 00:03:33
    the comments uh left under the video
  • 00:03:36
    last week and just as an aside the
  • 00:03:39
    comments were were interesting if you
  • 00:03:42
    watched the evolution of the comments
  • 00:03:44
    throughout the week uh I put the video
  • 00:03:47
    up uh on Monday and I mostly got scoffs
  • 00:03:52
    you know
  • 00:03:54
    hahhaa uh you keep making comments and
  • 00:03:57
    we'll keep making money and nobody was
  • 00:03:59
    was really rude just sort of laughing at
  • 00:04:02
    you because they thought you didn't
  • 00:04:04
    understand what was going on and you're
  • 00:04:05
    missing the boat and but by the end of
  • 00:04:08
    the week the comments had turned nasty
  • 00:04:11
    uh and angry and a lot of name calling I
  • 00:04:14
    had to block one person who just was
  • 00:04:16
    just right angry I think they were Irish
  • 00:04:19
    just by the uh the the words that they
  • 00:04:22
    used but I had to block one person cuz
  • 00:04:24
    just they were just angry you don't get
  • 00:04:26
    that angry without losing money and by
  • 00:04:28
    the end of the week people were losing
  • 00:04:30
    money on this and they were just angry
  • 00:04:32
    at anybody who wasn't saying things they
  • 00:04:34
    already agreed with any anybody who is
  • 00:04:36
    critical of this uh they just got angry
  • 00:04:39
    with like just sheer sheer rage
  • 00:04:43
    sometimes it was interesting to see the
  • 00:04:46
    uh the the change in tone throughout the
  • 00:04:48
    week as micro strategy took a big dump
  • 00:04:50
    last week uh but let's understand
  • 00:04:53
    convertible Arbitrage and what the bond
  • 00:04:56
    holders are doing when we understand
  • 00:04:59
    what the bond holders are doing will
  • 00:05:01
    understand the game a lot better and you
  • 00:05:03
    will see that if you are a Delta Trader
  • 00:05:05
    Delta Trader meaning that you buy uh
  • 00:05:09
    shares and you want the price to go up
  • 00:05:12
    now see that if you're a Delta Trader
  • 00:05:14
    you're playing a random game so that you
  • 00:05:17
    will uh over the uh uh next uh little
  • 00:05:21
    while I don't know how long this will
  • 00:05:23
    last you will make money then you will
  • 00:05:25
    give it back and you will make money and
  • 00:05:27
    you will give it back and you will make
  • 00:05:28
    money and make maybe you'll blow up
  • 00:05:30
    maybe you won't blow up but uh you won't
  • 00:05:34
    keep a lot of the money you make because
  • 00:05:36
    you won't understand the game that's
  • 00:05:38
    being played you're you're thinking that
  • 00:05:41
    you're playing basketball uh but you're
  • 00:05:44
    playing basketball on a soccer field so
  • 00:05:47
    every time you pick up the ball the
  • 00:05:48
    whistle blows you get a penalty and you
  • 00:05:49
    can't understand why because that's what
  • 00:05:51
    you're supposed to do in basketball but
  • 00:05:54
    again you're playing the wrong game
  • 00:05:56
    let's deal with convertible AR it's a
  • 00:05:58
    type of capital structure are and what
  • 00:06:01
    it relies on is in the capital structure
  • 00:06:03
    you have senior and Junior Securities
  • 00:06:05
    usually involves a long position in a
  • 00:06:07
    senior security and a short position in
  • 00:06:10
    a junior security um what makes the
  • 00:06:13
    convertible Bond attractive is it has a
  • 00:06:16
    call option in here so you can Delta
  • 00:06:18
    hedge the junior security so that you're
  • 00:06:21
    long AB Bond and you are delta neutral
  • 00:06:24
    uh you're delta neutral but uh you uh
  • 00:06:27
    have positive gamma uh which is what
  • 00:06:30
    you're doing you're gamma trading um the
  • 00:06:33
    biggest reason uh for uh for the
  • 00:06:36
    convertible Bond holders being here is
  • 00:06:38
    to take advantage of volatility in fact
  • 00:06:41
    with convertible debt this is the most
  • 00:06:43
    common reason for convertible debt
  • 00:06:46
    because with convertible debt you're
  • 00:06:47
    getting almost 0% interest usually very
  • 00:06:50
    low coupon the last convertible debt
  • 00:06:53
    Microsoft uh Microsoft micro strategy
  • 00:06:56
    sold had 0% coupon only because they
  • 00:06:58
    have such high
  • 00:07:00
    volatility uh so uh you do have a
  • 00:07:03
    conversion uh factor in here that
  • 00:07:05
    converts to a number of shares the
  • 00:07:08
    belief is that that means something and
  • 00:07:10
    some of the comments last week were why
  • 00:07:12
    would large
  • 00:07:14
    institutions uh uh be interested in
  • 00:07:16
    getting exposure to micro strategy
  • 00:07:18
    shares this way if they didn't believe
  • 00:07:19
    in it well they don't care about the
  • 00:07:23
    conversion uh a feature uh the
  • 00:07:25
    conversion is more of a penalty they
  • 00:07:28
    they would rather it not convert while
  • 00:07:30
    volatility is high most most convertible
  • 00:07:34
    bonds have a clause called a forced
  • 00:07:37
    conversion meaning that if the shares
  • 00:07:40
    are a certain percentage above the
  • 00:07:42
    conversion price for a certain number of
  • 00:07:45
    days the company can call the bonds at
  • 00:07:48
    par which forces the bond holder to
  • 00:07:51
    convert because they would lose money uh
  • 00:07:54
    and once they convert it's like oh well
  • 00:07:55
    it's over they'd be very willing to uh
  • 00:07:58
    do more convertible bonds to get back
  • 00:08:00
    into the volatility game so the the
  • 00:08:04
    conversion price is is is uh not
  • 00:08:07
    important what is important is the Delta
  • 00:08:10
    on the call what initial Delta do you
  • 00:08:13
    want on the call and the higher the
  • 00:08:14
    volatility the higher the conversion
  • 00:08:17
    price can be for a given Delta so they
  • 00:08:19
    say well let's start with a Delta of
  • 00:08:21
    04 on the call that will set the
  • 00:08:24
    conversion price right because this is
  • 00:08:27
    this is what they're interested in here
  • 00:08:28
    not not the conversion price the
  • 00:08:30
    conversion price actually is more of a
  • 00:08:32
    penalty they they really don't want the
  • 00:08:34
    shares uh it's to take advantage of
  • 00:08:37
    volatility another motivation is to take
  • 00:08:39
    advantage of Market
  • 00:08:41
    inefficiency uh that is a mispricing
  • 00:08:43
    between Securities in the same company
  • 00:08:46
    it's hard to say that you have a
  • 00:08:47
    mispricing inse Securities in the same
  • 00:08:50
    company what you can say is you have a
  • 00:08:52
    mispricing between the equity and
  • 00:08:54
    Bitcoin uh that the uh value of the
  • 00:08:57
    equity being 300 and at one point last
  • 00:09:00
    week over 400 times the price of Bitcoin
  • 00:09:04
    you could say well that's an
  • 00:09:05
    inefficiency but that's a cross asset
  • 00:09:07
    ARB that's not a capital structure ARB
  • 00:09:09
    that would be a long
  • 00:09:11
    Bitcoin uh short micro strategy trade uh
  • 00:09:15
    and you would short it uh on a
  • 00:09:17
    volatility relative basis so if the
  • 00:09:20
    volatility of Bitcoin I'm going to make
  • 00:09:22
    up numbers okay I'm just making it up
  • 00:09:23
    out of thin air to to to give my example
  • 00:09:26
    so if you're going to leave a comment
  • 00:09:28
    saying oh that's not the volatility of
  • 00:09:29
    Bitcoin I'm just making numbers up out
  • 00:09:31
    of thin air here let's say the
  • 00:09:33
    volatility of Bitcoin was 50% let's say
  • 00:09:35
    the volatility of micro strategy was
  • 00:09:38
    150% you would go long $30 of Bitcoin
  • 00:09:41
    and short $10 of micro strategy stock
  • 00:09:44
    you would do it uh such that you were
  • 00:09:47
    volatility as as volatility neutral in
  • 00:09:50
    your long and short positions as
  • 00:09:51
    possible so that is an ARB trade uh from
  • 00:09:55
    Bitcoin to micro strategy shares for
  • 00:09:57
    market inefficiency and account capital
  • 00:09:59
    structure the uh convertible Bond would
  • 00:10:02
    have to be mispriced based on where the
  • 00:10:04
    stock is and where the conversion
  • 00:10:06
    feature is that's really not a
  • 00:10:07
    motivation here this is it right here
  • 00:10:10
    take advantage uh of volatility what
  • 00:10:13
    provides the volatility for micro
  • 00:10:16
    strategy Shares are a combination of two
  • 00:10:19
    things number one is that you do have
  • 00:10:21
    shares that are trading at a ridiculous
  • 00:10:24
    premium to its net asset
  • 00:10:26
    value uh and you have a store story that
  • 00:10:29
    you can feed uh potential traders of the
  • 00:10:33
    stock that they buy into that story uh
  • 00:10:36
    and you convince them that they're
  • 00:10:37
    playing basketball even though you know
  • 00:10:40
    this is a soccer field you convince them
  • 00:10:42
    that they're playing
  • 00:10:44
    basketball well talk more about that on
  • 00:10:46
    the next screen let's look at how
  • 00:10:48
    convertible Bond uh holders make money
  • 00:10:51
    if they don't really care about the
  • 00:10:53
    stock price and they don't care about
  • 00:10:54
    the conversion uh factor and they don't
  • 00:10:57
    care about the Bitcoin which they don't
  • 00:10:59
    they really don't they only care about
  • 00:11:01
    the Bitcoin in as much as it provides
  • 00:11:03
    credit
  • 00:11:04
    protection um how do they make money uh
  • 00:11:07
    these are the last bonds they issued
  • 00:11:09
    were 0%
  • 00:11:11
    convertible uh which means there is no
  • 00:11:13
    coupon if if the there was a coupon if
  • 00:11:17
    anything greater than 0% they do they do
  • 00:11:19
    make the coupon albeit it would be low
  • 00:11:21
    they would make the coupon the lower the
  • 00:11:24
    volatility of the stock the higher the
  • 00:11:27
    coupon would be because that's what they
  • 00:11:30
    want they they're not interested in the
  • 00:11:32
    conversion in fact they'd rather it not
  • 00:11:34
    convert for as long as possible they're
  • 00:11:37
    interested in the volatility so if micro
  • 00:11:39
    strategy can deliver very high
  • 00:11:42
    volatility they can get to 0% uh other
  • 00:11:45
    companies that have convertible debt
  • 00:11:47
    have you sometimes you'll see a0 5%
  • 00:11:49
    coupon maybe a 1% coupon
  • 00:11:52
    6.25% the lower the volatility the
  • 00:11:55
    higher the coupon would be so if you can
  • 00:11:57
    deliver very high volatility you can get
  • 00:11:59
    0% money uh if there is any premium uh
  • 00:12:03
    the bond holders are going to get the
  • 00:12:05
    coupon and they need pull to par uh the
  • 00:12:07
    pull to par can be positive or negative
  • 00:12:10
    that's if the price at which they issued
  • 00:12:12
    the bond does not equal uh its face
  • 00:12:14
    value they would get something there
  • 00:12:17
    this is the big money here uh with the
  • 00:12:19
    volatility yield being the really big
  • 00:12:21
    one this is nice right here the short
  • 00:12:23
    rebate so to say there is no coupon
  • 00:12:25
    there really there kind of is a coupon
  • 00:12:29
    so let's say that uh the convertible
  • 00:12:31
    Bond was issued and they negotiated a
  • 00:12:34
    Delta of
  • 00:12:35
    04 uh on the call on the embedded call
  • 00:12:40
    uh whatever uh black schs Merton would
  • 00:12:42
    spit out you'd put in whatever the
  • 00:12:44
    implied volatility is the risk-free rate
  • 00:12:47
    uh it will spit out a uh a strike price
  • 00:12:49
    there's your conversion there's the uh
  • 00:12:52
    conversion price on that strike to equal
  • 00:12:55
    the Delta uh that they want uh for every
  • 00:12:58
    th
  • 00:13:00
    in bonds they'll be short $400 in micro
  • 00:13:03
    strategy shares that $400 earns the
  • 00:13:06
    overnight rate so they are getting a
  • 00:13:08
    coupon uh uh on on the proceeds of the
  • 00:13:11
    short sale because they are uh long uh
  • 00:13:15
    point4 Delta and now they're short
  • 00:13:17
    point4 Delta so their Delta equals
  • 00:13:20
    zero uh on this one uh but their gamma
  • 00:13:23
    is greater than zero that's what they
  • 00:13:25
    want is the gamma greater than zero but
  • 00:13:27
    the Delta equal to zero and of course
  • 00:13:29
    they are along a bond that is
  • 00:13:32
    collateralized by the Bitcoin senior
  • 00:13:35
    unsecured yes butd senior to equity
  • 00:13:39
    which means they're first in line to all
  • 00:13:41
    the assets all that Bitcoin belongs to
  • 00:13:44
    them and I'll talk about enhanced credit
  • 00:13:47
    features uh that micro strategy provides
  • 00:13:50
    that is being sold to you as a feature
  • 00:13:53
    but it's not a feature for you it's a
  • 00:13:55
    feature for the bond holders so the
  • 00:13:57
    short proceeds we'll get the over rate
  • 00:13:59
    less any dividends that are paid uh most
  • 00:14:02
    often the Dividends are zero companies
  • 00:14:04
    that issue convertible uh debt usually
  • 00:14:06
    don't have dividends so there usually
  • 00:14:08
    are no dividends so you you would have a
  • 00:14:11
    borrow fee whatever the the the fee is
  • 00:14:14
    to borrow the shares the fee to borrow
  • 00:14:17
    the shares would be very high if the
  • 00:14:21
    float was low the fee to borrow the
  • 00:14:24
    shares would be lower if the float were
  • 00:14:26
    higher so how you get a very low fee on
  • 00:14:30
    borrowing the shares is I don't know
  • 00:14:32
    split your stock 10 times and and you'll
  • 00:14:35
    have a whole bunch of shares out there
  • 00:14:38
    uh and it will the size of the float the
  • 00:14:40
    larger the float the more widely it's
  • 00:14:43
    held the more liquidity in it the lower
  • 00:14:45
    the borrow the borrow rate would be so
  • 00:14:47
    it would be helpful if the company had a
  • 00:14:49
    large float if it doesn't it can always
  • 00:14:51
    do a 10 times uh a 10 a 10 for One
  • 00:14:54
    reverse
  • 00:14:56
    split I wonder if that sounds familiar
  • 00:14:58
    to anybody anyways they get this then
  • 00:15:00
    they get a volatility yield this is the
  • 00:15:02
    big one because the call has
  • 00:15:05
    convexity um I drew this out wrong let
  • 00:15:08
    me let me redraw this it's the right
  • 00:15:11
    shape I just drew it in the wrong place
  • 00:15:13
    anybody from level three who has been
  • 00:15:15
    through the first two readings of the
  • 00:15:17
    fixed
  • 00:15:18
    income uh readings um for
  • 00:15:22
    immunization will understand the role of
  • 00:15:24
    convexity in a
  • 00:15:26
    portfolio uh let's do what oops let me
  • 00:15:29
    try to draw this out a little bit better
  • 00:15:31
    here there we go there is
  • 00:15:35
    convexity um and let's say that uh this
  • 00:15:38
    is the current share price uh right now
  • 00:15:41
    uh and we'll just draw out vertical here
  • 00:15:44
    there's the share price if the share
  • 00:15:46
    price doesn't move uh convexity is
  • 00:15:49
    actually a bad thing because you're
  • 00:15:50
    paying for convexity you'll
  • 00:15:53
    underperform uh when you have convexity
  • 00:15:55
    you want things to move this is this is
  • 00:15:58
    the benefit of having convexity in a
  • 00:16:00
    bond portfolio if you're immunizing a
  • 00:16:02
    stream of
  • 00:16:03
    liabilities and you expect uh volatility
  • 00:16:07
    to increase what would you do to your
  • 00:16:09
    bond portfolio for the same
  • 00:16:11
    duration you would attempt to increase
  • 00:16:14
    the convexity of that portfolio so that
  • 00:16:16
    it would outperform whether rates went
  • 00:16:18
    up or whether whether yields went up or
  • 00:16:20
    whether yields went down you would
  • 00:16:21
    outperform the Benchmark The Benchmark
  • 00:16:23
    being the liabilities right same thing
  • 00:16:26
    applies
  • 00:16:27
    here uh the convertible Bond holder is
  • 00:16:30
    long the bond plus a call uh the bond
  • 00:16:33
    plus call will increase in value more
  • 00:16:35
    than the short position if you are
  • 00:16:37
    originally delta neutral and the price
  • 00:16:40
    really went up uh the bond plus the call
  • 00:16:43
    option would outperform the short
  • 00:16:44
    position and you make money uh if it
  • 00:16:47
    really went down the bond plus the call
  • 00:16:50
    will decrease by less than the short
  • 00:16:52
    position you will make money now you
  • 00:16:55
    understand what the convertible Bond
  • 00:16:56
    holder likes about micro strategy
  • 00:16:59
    is if you want a gamma trade you need
  • 00:17:03
    volatility the more volatility the more
  • 00:17:07
    profitable the trade becomes you need
  • 00:17:09
    volatility you don't care if the price
  • 00:17:11
    goes up you don't care if the price goes
  • 00:17:13
    down the convertible bond is the
  • 00:17:16
    mechanism by which you can set up the
  • 00:17:18
    trade without the convertible Bond you
  • 00:17:20
    can still do it with call options in the
  • 00:17:22
    market just it's a lot more it's a lot
  • 00:17:24
    more work to get
  • 00:17:26
    done um the bond gives you all all all
  • 00:17:30
    the uh leverage that you want so if I
  • 00:17:33
    got to pay a billion dollars uh for the
  • 00:17:36
    bond and I get 400 million on the short
  • 00:17:40
    sale I'm really only out 600 million at
  • 00:17:43
    that point am I not right uh and if the
  • 00:17:47
    price of the shares go up the Delta of
  • 00:17:50
    the call will go up I will short more so
  • 00:17:53
    then at some point I'll be short 500
  • 00:17:55
    million I'm really only out 500 million
  • 00:17:57
    at that point so you can see that I'm
  • 00:18:00
    getting a little bit of Leverage uh in
  • 00:18:02
    there as well so this is this is the
  • 00:18:05
    game being
  • 00:18:06
    played okay so let's get uh to what this
  • 00:18:09
    would mean for the
  • 00:18:11
    shareholder um here is a replication of
  • 00:18:14
    what I had on the last screen and yeah
  • 00:18:16
    it should look like
  • 00:18:18
    this uh if we're going to draw it out
  • 00:18:20
    right and this is the price increasing
  • 00:18:23
    this is the price
  • 00:18:24
    decreasing and the convertible Bond
  • 00:18:27
    holders are gamma Trading Delta trading
  • 00:18:30
    means that you're trading the change in
  • 00:18:32
    the share price in it's a directional
  • 00:18:35
    trade either you have positive Delta and
  • 00:18:38
    you want the price to go up or you have
  • 00:18:41
    negative Delta and you want the price to
  • 00:18:43
    go down gamma trading is you just want
  • 00:18:46
    the Delta to change you don't really
  • 00:18:48
    care if it goes up or goes down you
  • 00:18:50
    you're agnostic about the price move
  • 00:18:53
    what you want is a price move and a
  • 00:18:55
    significant price move the other thing
  • 00:18:57
    the uh convertible bonds want um because
  • 00:19:01
    if they don't
  • 00:19:03
    convert the uh face value has to be paid
  • 00:19:06
    back at maturity the bond holders will
  • 00:19:09
    go okay well give us our money back now
  • 00:19:12
    you're going to need some kind of credit
  • 00:19:14
    protection because at the heart of micro
  • 00:19:17
    strategy is a money losing software
  • 00:19:19
    business it doesn't generate the money
  • 00:19:21
    to pay back these bonds so what is there
  • 00:19:24
    to pay it back it's the Bitcoin you
  • 00:19:26
    would have to sell the Bitcoin but what
  • 00:19:28
    happens if the price of Bitcoin drops
  • 00:19:31
    remember now uh I gave you a billion
  • 00:19:33
    dollars and you went and bought Bitcoin
  • 00:19:35
    but you're not buying a billion dollars
  • 00:19:37
    of Bitcoin because there's a leak here
  • 00:19:39
    right usually about
  • 00:19:40
    1% uh in underwriting fees you got about
  • 00:19:43
    1% so you're not really buying 100%
  • 00:19:46
    you're only buying 99% of the value in
  • 00:19:49
    Bitcoin uh but what if Bitcoin drops
  • 00:19:51
    10% I'm I'm kind of I'm kind of in
  • 00:19:54
    trouble so I would like you to over
  • 00:19:56
    collateralize if you can is there any
  • 00:19:58
    way that you can double the amount of
  • 00:20:00
    Bitcoin that you have well okay what we
  • 00:20:03
    can do is issue Equity at the same time
  • 00:20:06
    uh that in the same quantity we're
  • 00:20:08
    issuing convertible
  • 00:20:09
    debt uh is micro strategy doing
  • 00:20:12
    something like that uh yeah they uh
  • 00:20:15
    their 42 plan is 21 billion in
  • 00:20:18
    convertible bonds and 21 billion in
  • 00:20:20
    equity and the this is to collateralize
  • 00:20:24
    to um to offer credit protection for the
  • 00:20:28
    convert able bonds yes they're unsecured
  • 00:20:31
    that's not the word the word is senior
  • 00:20:33
    they're senior to uh equity which is
  • 00:20:35
    Junior so all of that Bitcoin belongs to
  • 00:20:37
    the bond holders so if this all falls
  • 00:20:40
    apart all that Bitcoin belongs to them
  • 00:20:42
    they sell it off if there's anything
  • 00:20:44
    left you guys can get it so let's look
  • 00:20:47
    at uh how this works out let's start
  • 00:20:49
    with a uh delta neutral position you
  • 00:20:52
    bought $1
  • 00:20:54
    billion of uh convertible bonds from
  • 00:20:57
    micro strategy uh and you have a call
  • 00:21:00
    and let's say the Delta of the call
  • 00:21:03
    is4 and based on the volatility it sets
  • 00:21:06
    the conversion price or the strike price
  • 00:21:08
    but you have 04 you will immediately a
  • 00:21:11
    short 400 million of micro strategy
  • 00:21:14
    stock because you are basically long 400
  • 00:21:18
    million on the call you're delta neutral
  • 00:21:21
    but you have gamma in the uh in the uh
  • 00:21:24
    option uh but the short position has no
  • 00:21:27
    gamma right it has a consistent Delta
  • 00:21:30
    the Delta will not change but the Delta
  • 00:21:32
    here will change by uh the rate gamma
  • 00:21:35
    measures the rate of change in Delta so
  • 00:21:37
    you are delta neutral to begin with if
  • 00:21:39
    the price then goes up the Delta on this
  • 00:21:44
    will go up you'll sell more shares at
  • 00:21:46
    higher prices so uh you will outperform
  • 00:21:49
    and you will uh the value of your
  • 00:21:52
    portfolio will be higher that day yay we
  • 00:21:54
    made money let's get delta neutral again
  • 00:21:57
    uh so you will short more shares but
  • 00:21:59
    notice you're shorting shares on the way
  • 00:22:00
    up watch what happens when when the
  • 00:22:03
    price goes down uh and we'll just jump
  • 00:22:05
    to that now if the price drops the Delta
  • 00:22:08
    will drop you will cover shares at lower
  • 00:22:11
    prices so uh you'll
  • 00:22:13
    outperform on the fact that you have
  • 00:22:15
    convexity and you'll be covering the
  • 00:22:17
    shares that you shorted at the higher
  • 00:22:19
    price at the lower price thank you very
  • 00:22:22
    much um if the price of micro strategy
  • 00:22:27
    uh is greater than than the conversion
  • 00:22:29
    price uh the Delta on the call will
  • 00:22:32
    start to approach one as the price keeps
  • 00:22:35
    going up and up and up and up and up and
  • 00:22:37
    up the Delta on that call will start
  • 00:22:39
    approaching one and since you're selling
  • 00:22:41
    more shares on the way up the short
  • 00:22:43
    Position will equal the conversion
  • 00:22:46
    position so that when the shares are
  • 00:22:48
    delivered to the bond holders it
  • 00:22:50
    basically just covers a short position
  • 00:22:52
    they end up with zero
  • 00:22:54
    position so the belief that the bond
  • 00:22:56
    holders are in this because they want
  • 00:22:58
    the shares no they do not they do not
  • 00:23:01
    want the shares they specifically do not
  • 00:23:04
    want the shares once the shares are
  • 00:23:07
    converted and assigned to them it
  • 00:23:08
    basically just covers their short
  • 00:23:10
    position so there is a built-in cover uh
  • 00:23:13
    they're not interested in the shares the
  • 00:23:14
    new shares simply just dilute the
  • 00:23:16
    existing shareholders the bond holders
  • 00:23:19
    don't suffer anything on this the uh
  • 00:23:21
    existing shareholders suffer all the
  • 00:23:24
    downside you cannot have a situation
  • 00:23:27
    where you have an asset does that
  • 00:23:29
    doesn't create an income stream but
  • 00:23:31
    somehow Bond holders make money
  • 00:23:32
    shareholders make money management
  • 00:23:34
    everybody makes money from something
  • 00:23:36
    that doesn't produce an income stream
  • 00:23:38
    this is a zero sum game which means for
  • 00:23:40
    somebody to make money here somebody has
  • 00:23:42
    to lose money that's the
  • 00:23:44
    shareholders uh if the price of the uh
  • 00:23:47
    micro strategy Shares are below the
  • 00:23:49
    conversion price uh and they keep
  • 00:23:52
    dropping below the conversion price the
  • 00:23:54
    Delta will approach zero the convertible
  • 00:23:57
    Bond becomes a straight bond which is
  • 00:23:59
    senior to the equity which means it has
  • 00:24:03
    a first claim on all the Bitcoin of
  • 00:24:04
    which the equity bought half the Bitcoin
  • 00:24:06
    thank you very much for the collateral
  • 00:24:09
    protection uh it'll approach the
  • 00:24:11
    straight Bond the question I have and I
  • 00:24:15
    don't have an answer for this is uh for
  • 00:24:18
    convertible um uh for convertible Bond
  • 00:24:21
    Traders sometimes they have a floor um
  • 00:24:24
    under which they won't hedge by that I
  • 00:24:27
    mean they may decide that their floor on
  • 00:24:29
    hedging is
  • 00:24:31
    uh3 that uh if the Delta of uh the call
  • 00:24:35
    drops to 02 and 0.1 they will not change
  • 00:24:38
    from 3 and that is another form of
  • 00:24:41
    credit protection what that is saying is
  • 00:24:43
    that if if there's going to be a default
  • 00:24:46
    on the bond the short position provided
  • 00:24:48
    at least 30% 30% downside so if this
  • 00:24:51
    whole thing collapses uh and the shares
  • 00:24:54
    go to zero and all the Bitcoin go to the
  • 00:24:56
    bond holders the bond holders at least
  • 00:24:58
    on their short position have 30% of
  • 00:25:01
    their face value covered they may have a
  • 00:25:04
    floor I don't know if anybody uh knows
  • 00:25:08
    uh how how they would be trading that go
  • 00:25:11
    ahead and leave a comment the typical uh
  • 00:25:15
    um amount is 0.5 typically uh you
  • 00:25:19
    wouldn't hedge below a 0.5 but this is a
  • 00:25:22
    unique situation with very high
  • 00:25:25
    volatility I don't know if they would
  • 00:25:27
    even play with the floor or not being
  • 00:25:30
    that the Bitcoin is uh they're issuing
  • 00:25:34
    Equity uh to add Bitcoin to the balance
  • 00:25:36
    sheet so that there's two times the
  • 00:25:38
    amount of Bitcoin versus the value of
  • 00:25:40
    the
  • 00:25:41
    debt Bitcoin would have to fall by 50%
  • 00:25:45
    before it threatens the bond holders
  • 00:25:47
    that might be enough that might be
  • 00:25:49
    enough uh uh collateral in there without
  • 00:25:52
    having to worry about this but there
  • 00:25:54
    still might be a floor to the downside I
  • 00:25:56
    don't know that's uh that would be
  • 00:25:58
    interesting if anyone uh knew uh what
  • 00:26:00
    that
  • 00:26:02
    was um here's the best outcome for
  • 00:26:05
    everybody involved how when I say for
  • 00:26:07
    everybody involved it's the best outcome
  • 00:26:09
    uh for the shareholders as well if you
  • 00:26:11
    want to keep this game alive is uh you
  • 00:26:13
    have uh what big price spring uh swings
  • 00:26:17
    you don't really care what direction the
  • 00:26:19
    market price is not critical volatility
  • 00:26:21
    is this will keep the convertible Bond
  • 00:26:23
    holders in the game so I'm just going to
  • 00:26:26
    erase some stuff so I can uh out a few
  • 00:26:29
    charts uh for you uh so
  • 00:26:33
    this uh price doing this is okay as long
  • 00:26:35
    as it does
  • 00:26:37
    this a price doing this is okay as long
  • 00:26:40
    as it does this and a price doing this
  • 00:26:42
    is okay as long as it does this what we
  • 00:26:45
    don't want to see is volatility start to
  • 00:26:48
    do this and even if the price is going
  • 00:26:50
    up like this but volatility disappears
  • 00:26:53
    like this the game is over because the
  • 00:26:56
    output which is vol volatility is gone
  • 00:27:00
    it would be like me still showing up to
  • 00:27:02
    your restaurant and you saying oh we're
  • 00:27:03
    out of food we don't s serve food
  • 00:27:05
    anymore but come on in and pay and just
  • 00:27:08
    pay an imaginary bill it's like well I
  • 00:27:11
    I'm here for the food if you don't have
  • 00:27:12
    the food what would I come to this place
  • 00:27:14
    for the convertible Bond Traders are
  • 00:27:17
    saying we're here for the volatility if
  • 00:27:19
    you don't have the volatility we're not
  • 00:27:20
    really interested just give us our money
  • 00:27:22
    back well now that's a problem uh
  • 00:27:25
    because if the volatility disappears and
  • 00:27:28
    you you got to get the money back here's
  • 00:27:29
    what's going to happen to the share
  • 00:27:30
    price it is going to drop very
  • 00:27:35
    quickly uh so it is not what's keeping
  • 00:27:38
    the share price up is the volatility not
  • 00:27:42
    not not this magic Bitcoin yield that
  • 00:27:44
    you're being sold they that that's just
  • 00:27:48
    that's just a story that's being told to
  • 00:27:50
    you um and uh if we listen to Michael
  • 00:27:54
    sailor and what he what he tells you
  • 00:27:56
    he's filling you up with a heavy of
  • 00:27:59
    misinformation CNBC interview he says
  • 00:28:01
    we're making we're basically making $500
  • 00:28:04
    million a day that is Enron style math
  • 00:28:08
    okay so what Enron did was it had these
  • 00:28:11
    spvs and then it would book all future
  • 00:28:14
    profit whether it was real or not based
  • 00:28:17
    on their assumptions they would find the
  • 00:28:19
    present value of all those future
  • 00:28:20
    profits and call it profit today if they
  • 00:28:22
    wanted more profits they changed their
  • 00:28:25
    assumptions so what what is a better
  • 00:28:28
    statement that he made last week is the
  • 00:28:31
    sale of the convertible debt that we did
  • 00:28:35
    opens the door to the possibility that
  • 00:28:39
    we may end up with 500 million more of
  • 00:28:42
    Bitcoin than it costs us in shares if
  • 00:28:44
    we'd sold shares today that relies on
  • 00:28:48
    those shares on those bonds being
  • 00:28:50
    converted into shares in other words
  • 00:28:54
    they didn't make 500 million that day
  • 00:28:56
    they opened up the possibility
  • 00:28:59
    that they may get that at some point in
  • 00:29:01
    the future or may not they didn't make
  • 00:29:03
    it that day to say that you did is to
  • 00:29:06
    Mark uh to Market all of your gains
  • 00:29:09
    today without the market going in the
  • 00:29:12
    without knowing what direction the
  • 00:29:13
    Market's going to go in that is some
  • 00:29:15
    Enron style math that's involved there
  • 00:29:18
    but he did say one thing that's true he
  • 00:29:21
    said we are selling $1 bills for
  • 00:29:23
    $3 now if you're listening to that you
  • 00:29:25
    say that is fantastic what a great
  • 00:29:27
    business to be in until you realize that
  • 00:29:30
    they're selling these three these $1
  • 00:29:32
    bills for three bucks to you they're
  • 00:29:34
    issuing Equity at% premium to bitcoin
  • 00:29:38
    they're selling $1 bills for $3 that is
  • 00:29:41
    beautiful for the bond holders what
  • 00:29:43
    great collateral thank you thank you
  • 00:29:45
    shareholders you just keep providing us
  • 00:29:47
    this
  • 00:29:49
    collateral uh the larger and more
  • 00:29:51
    frequent the move the greater the gain
  • 00:29:53
    uh is for the convertible Bond holders
  • 00:29:56
    and if you can keep this alive
  • 00:29:58
    uh let's say you keep this alive and the
  • 00:30:00
    price is down here way below the
  • 00:30:03
    conversion and you're at expiration uh
  • 00:30:06
    the convertible Bond holders will gladly
  • 00:30:08
    roll over and say we'll go another four
  • 00:30:10
    years thank you very much they'll gladly
  • 00:30:12
    roll over uh you keep doing what you're
  • 00:30:14
    doing you keep providing the
  • 00:30:17
    volatility um if you're Delta trading uh
  • 00:30:20
    you're going to get random results why
  • 00:30:23
    because you need this thing to move up
  • 00:30:25
    and down and up and down and you make
  • 00:30:27
    money and you give it back and you make
  • 00:30:28
    money and you give it back and you make
  • 00:30:30
    it and you give it back and all you blew
  • 00:30:32
    up uh you're playing the wrong game you
  • 00:30:35
    got to get lucky if you're playing
  • 00:30:37
    basketball on a soccer field you got to
  • 00:30:39
    get lucky and hope the ball is never
  • 00:30:41
    passed to you CU as soon as it touches
  • 00:30:43
    your hands ah it's a soccer game
  • 00:30:45
    penalty uh the game here is gamma
  • 00:30:47
    trading uh the bond holders will be as
  • 00:30:51
    long as this is here they get consistent
  • 00:30:52
    results so you got to get smart about
  • 00:30:55
    the game that's being played so let's uh
  • 00:30:58
    look at the um the business model for
  • 00:31:01
    micro strategy uh let's look at their
  • 00:31:04
    output first what are they selling uh
  • 00:31:06
    they're selling
  • 00:31:08
    volatility uh and uh they need some kind
  • 00:31:12
    of operational
  • 00:31:14
    asset how are you uh producing this
  • 00:31:17
    output that you're selling because you
  • 00:31:18
    have to have a way to produce this
  • 00:31:21
    output uh the operational asset is the
  • 00:31:24
    uh micro strategy
  • 00:31:26
    shareholder uh and and there is a
  • 00:31:28
    process uh in which you U misinform the
  • 00:31:32
    micro strategy shareholder and you keep
  • 00:31:34
    them in the game such that they will
  • 00:31:37
    continue uh to produce the volatility
  • 00:31:39
    you need to sell uh to the convertible
  • 00:31:42
    Bond holders because that's the game you
  • 00:31:44
    are an operational asset you are the
  • 00:31:48
    input you are a depreciating asset like
  • 00:31:52
    any operational asset there's going to
  • 00:31:54
    be an estimated useful life and there's
  • 00:31:58
    going to be some sort of depreciation
  • 00:31:59
    that you apply to that estimated useful
  • 00:32:01
    life and you'll have a salvage value of
  • 00:32:04
    whatever Bitcoin is left over after the
  • 00:32:07
    convertible Bond holders get all of
  • 00:32:09
    their money back so the question is well
  • 00:32:12
    what is the useful life of the
  • 00:32:15
    assets that's the whole thing about
  • 00:32:18
    these volatility games is you don't know
  • 00:32:21
    uh you have implied volatility now of
  • 00:32:23
    213% so let's say that it drops to 100%
  • 00:32:27
    and let's say the price uh goes up and
  • 00:32:30
    you are short uh shares right now well
  • 00:32:34
    you're going to lose on the short
  • 00:32:35
    position but you're going to gain on the
  • 00:32:37
    call however implied volatility is
  • 00:32:39
    dropping so your convexity is going to
  • 00:32:41
    start to do
  • 00:32:42
    this right so if this is your short
  • 00:32:45
    position if implied volatility Falls too
  • 00:32:48
    much uh-oh now the game is over now
  • 00:32:51
    you're losing now you're going to lose
  • 00:32:54
    and if that becomes the case because
  • 00:32:56
    everybody knows
  • 00:32:58
    everybody knows that's the game if
  • 00:33:00
    that's the case these shorts are going
  • 00:33:02
    to pile into this very fast because the
  • 00:33:05
    second type of Arbitrage is going to
  • 00:33:07
    show up which is long Bitcoin and short
  • 00:33:11
    micro strategy shares down to its net
  • 00:33:13
    asset value and even lower because
  • 00:33:16
    you're going to have to pay back those
  • 00:33:18
    bonds with all that Bitcoin you bought
  • 00:33:20
    which means the residual for the
  • 00:33:22
    shareholders is going to be rather
  • 00:33:25
    tiny so what should you be looking at to
  • 00:33:28
    determine how uh how safe this is to
  • 00:33:31
    play you should be looking at the
  • 00:33:32
    volatility if volatility on this starts
  • 00:33:34
    dropping you're in trouble how do you
  • 00:33:36
    keep volatility alive well if the price
  • 00:33:39
    is moving in One Direction uh can we get
  • 00:33:42
    a short report in on this and can we get
  • 00:33:44
    some negative stories maybe Wall Street
  • 00:33:46
    Journal would be good maybe one of the
  • 00:33:48
    convertible Bond holders may call a
  • 00:33:50
    contact you know Black Rock calls Wall
  • 00:33:53
    Street Journal a contact say have you
  • 00:33:55
    looked at how crazy the math is on this
  • 00:33:57
    micr strategy thing I think there's a
  • 00:33:59
    story here and of course that should
  • 00:34:01
    send it right back down and then of
  • 00:34:02
    course you have management that can then
  • 00:34:04
    uh you know make uh uh you know go on
  • 00:34:07
    CNBC go on Bloomberg Go on stage
  • 00:34:09
    somewhere and talk about the Bitcoin
  • 00:34:12
    yield we're making 500 million a day uh
  • 00:34:15
    we're selling $1 bills for $3 uh you
  • 00:34:18
    know these institutions want access to
  • 00:34:21
    us all somewhat truths but a heavy dose
  • 00:34:25
    of misinformation in there and some
  • 00:34:27
    Enron Stu ST Math uh and hopefully you
  • 00:34:30
    can get the price to go back up but you
  • 00:34:31
    can't have it go in one direction which
  • 00:34:33
    means hopefully we can get another uh
  • 00:34:35
    short report in here it would be help
  • 00:34:37
    helpful you know on the next time if we
  • 00:34:39
    had somebody that issued a long report
  • 00:34:41
    bti uh does that for micro strategy it
  • 00:34:45
    uh it continues to be bullish which
  • 00:34:47
    makes no sense when you look at paying
  • 00:34:50
    300% of nav even if you have 30% I grant
  • 00:34:53
    you even if you had 30% uh leverage I'm
  • 00:34:57
    just won't even question it because
  • 00:34:59
    because they do all convert and the bond
  • 00:35:01
    holders are short so it's questionable
  • 00:35:03
    whether there is leverage to begin with
  • 00:35:04
    but let's say 30%
  • 00:35:06
    leverage uh you would have uh a premium
  • 00:35:09
    of 30% over Bitcoin not 300 and 400% no
  • 00:35:14
    no nobody uh who is an analyst would
  • 00:35:18
    ever would ever suggest that that that
  • 00:35:20
    that makes a lot of sense so uh that is
  • 00:35:24
    part of your production process you are
  • 00:35:28
    not shareholders you are operational
  • 00:35:30
    assets you are depreciable assets you
  • 00:35:32
    are assets from which we will extract
  • 00:35:35
    value for our output for our true
  • 00:35:38
    customers which are the convertible
  • 00:35:41
    bonds uh the narrow window in which this
  • 00:35:45
    works out is the price keeps going up on
  • 00:35:48
    very high volatility so that the
  • 00:35:51
    inefficient stock price becomes even
  • 00:35:53
    more inefficient you need to be 300% of
  • 00:35:56
    nap 400 100% 500% 600% and all of these
  • 00:36:01
    people oblivious oblivious to the fact
  • 00:36:05
    and completely drinking the Kool-Aid and
  • 00:36:08
    sold and sold on the idea that this is
  • 00:36:11
    this is this is going to be incredible
  • 00:36:13
    this is going to be a 20 trillion
  • 00:36:15
    company and it has to keep going that
  • 00:36:17
    way or it all falls apart and when that
  • 00:36:20
    volatility disappears you all disappear
  • 00:36:23
    this whole thing disappears this is a
  • 00:36:27
    one way bet a oneway bet it must work
  • 00:36:31
    out it's a one-way bet everything else
  • 00:36:34
    is absolute destruction if you um want
  • 00:36:37
    to entertain yourself a little bit more
  • 00:36:41
    I want you to go to the SEC go to Edgar
  • 00:36:44
    and uh look up micro strategy and uh
  • 00:36:46
    just look for form four form four is
  • 00:36:49
    Insider buying and selling uh micro
  • 00:36:52
    strategy has a lot of share-based
  • 00:36:54
    compensation so it it not only does it
  • 00:36:57
    sell Equity to buy Bitcoin to back up uh
  • 00:37:01
    What uh what the convertible Bond
  • 00:37:02
    holders would have as assets uh it
  • 00:37:05
    prints shares for itself uh uh at a very
  • 00:37:09
    rapid pace so there's another leak that
  • 00:37:11
    you have as well so if you look at form
  • 00:37:14
    four you will see an a followed by a
  • 00:37:16
    bunch of
  • 00:37:17
    D's a is acquired D is disposed so the
  • 00:37:21
    acquired is your share base compensation
  • 00:37:23
    is vested you have now 50,000 shares
  • 00:37:26
    sell sell sell sell sell
  • 00:37:28
    it's it's not a matter of thank you sell
  • 00:37:30
    sell sell sell
  • 00:37:31
    sell and the next one call up the next
  • 00:37:33
    one same thing sell sell sell sell sell
  • 00:37:35
    next one sell sell sell sell sell look
  • 00:37:36
    at the sheer number of form fours why
  • 00:37:40
    because they are selling $1 bills for
  • 00:37:43
    three bucks why wouldn't they do it if
  • 00:37:46
    they really believed in the Delta story
  • 00:37:49
    they wouldn't be sellers but they know
  • 00:37:50
    this is a gamma story not a Delta story
  • 00:37:53
    so yeah they're more than willing to
  • 00:37:55
    sell you their shares at a 300% sent
  • 00:37:57
    premium to bitcoin you give me three
  • 00:38:00
    bucks uh and you'll get a dollar of
  • 00:38:02
    Bitcoin and I'll go buy $3 of Bitcoin
  • 00:38:05
    thank you very much you're getting
  • 00:38:07
    fleeced in so many
  • 00:38:10
    ways because you think you're playing
  • 00:38:12
    basketball you can't see it once you see
  • 00:38:15
    that this is a soccer field you'll stop
  • 00:38:18
    playing the way you're playing now I can
  • 00:38:20
    show you how to trade how to gamma trade
  • 00:38:24
    micro strategy without the bonds you
  • 00:38:27
    don't need the bonds micro strategy has
  • 00:38:29
    options you can you can uh buy calls uh
  • 00:38:33
    yourself and you can short shares
  • 00:38:35
    yourself uh and you can trade the
  • 00:38:38
    selection of what strike to buy and uh
  • 00:38:42
    what date to expiration requires that
  • 00:38:45
    you understand Theta Decay which if you
  • 00:38:47
    don't understand Theta Decay don't even
  • 00:38:50
    try to do this you will get murdered if
  • 00:38:54
    you don't understand uh how volatility
  • 00:38:56
    stays aive don't even try to do this if
  • 00:38:59
    you have a small account if you have
  • 00:39:01
    less than 25,000 don't even try to do
  • 00:39:03
    this because you will be uh classified
  • 00:39:06
    as a pattern day trader very quickly
  • 00:39:09
    because this does require you to Delta
  • 00:39:11
    hedge uh every day sometimes uh intraday
  • 00:39:14
    because this thing does move and what
  • 00:39:17
    you're hoping for at this point in time
  • 00:39:19
    is not the price to go up or the price
  • 00:39:21
    to go down but for the price to move and
  • 00:39:24
    you don't care what direction it moves
  • 00:39:26
    in
  • 00:39:28
    that's how you make money and if you can
  • 00:39:30
    do this you can use leverage there's
  • 00:39:32
    where your magic leverage comes in is on
  • 00:39:35
    this particular trade cuz you're delta
  • 00:39:37
    neutral I will put this video up uh
  • 00:39:41
    Monday as I described in the opening
  • 00:39:43
    screen I will put it up in the applied
  • 00:39:45
    level in the applied options in the
  • 00:39:48
    volatility trading folder because this
  • 00:39:50
    is uh the purest form of volatility
  • 00:39:53
    trading which is uh which is gamma uh
  • 00:39:56
    gamma Trading
  • 00:39:59
    that's the game being played out there
  • 00:40:00
    now to keep this alive you got to keep
  • 00:40:03
    you got to keep going you got to keep
  • 00:40:04
    this kind of thing going how do you keep
  • 00:40:06
    this going you have to continue to add
  • 00:40:09
    Bitcoin you have to continue to keep
  • 00:40:11
    this alive you have to issue more uh uh
  • 00:40:14
    bonds you have to issue more Equity
  • 00:40:17
    because the more uh Bond holders you
  • 00:40:19
    have the more they're going to short
  • 00:40:21
    shares on the way up the more they're
  • 00:40:22
    going to uh cover the short on the way
  • 00:40:24
    down they will provide some of the
  • 00:40:26
    volatility as well and you got to keep
  • 00:40:28
    the story alive for the for the
  • 00:40:30
    shareholders and saying oh we raised
  • 00:40:32
    even more money people can't wait to get
  • 00:40:34
    in institutions are throwing money at us
  • 00:40:37
    and you will think ah what a great Delta
  • 00:40:40
    game and they're there for the gamma
  • 00:40:43
    game right it's like walking down the
  • 00:40:45
    street and seeing a long lineup and
  • 00:40:47
    thinking they're going into your bar but
  • 00:40:48
    they're not they're going into the bar
  • 00:40:50
    next door that's what's going on here so
  • 00:40:53
    this will be up in the applied level uh
  • 00:40:55
    tomorrow uh I'll show you how to uh how
  • 00:40:58
    to how uh gamma trading would work on
  • 00:41:01
    micro strategy shares
  • 00:41:26
    [Music]
Tags
  • Buy-side modeling
  • Sell-side modeling
  • Convertible bonds
  • Gamma trading
  • MicroStrategy
  • Volatility
  • Market inefficiency
  • Stock price
  • Shareholder misinformation
  • Financial strategy