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Betting Against A Bitcoin Hoarder

Portfolio Armor's Photo
by Portfolio Armor
Friday, Mar 29, 2024 - 8:38
DALL-E's representation of a market neutral Bitcoin trade.

Kerrisdale Capital Takes Some Air Out Of MicroStrategy

Shares of MicroStrategy (MSTR), the enterprise software company that became a bitcoin hoarder, tanked 11.18% yesterday after Kerrisdale Capital shared the thread below on X. 

Two Weeks Earlier, A Slightly Different Approach

We had a similar idea to Kerrisdale Capital a couple of weeks ago, except rather than betting on a convergence between MicroStrategy and bitcoin, our bet was on a convergence between MicroStrategy and a bitcoin miner that had underperformed bitcoin year-to-date:

Betting On A Convergence

Bitcoin is up about 65% year-to-date, but there’s an interesting divergence between two Bitcoin-related stocks, both of which have appeared among Portfolio Armor’s top ten names in the past: one up more than 150% year-to-date, and the other is down more than 15% year-to-date.

I am using options to bet on the stock that’s down year-to-date to rise and the one that’s up more than 150% year-to-date to drop over the next few months.

We got a fill on our bullish options bet on the bitcoin miner right away, and that part of the convergence has started to happen: that miner is up about 28% since. 

Betting against MicroStrategy was a bit more of a challenge. Put options on it were extremely expensive, so we took the late Charlie Munger's advice ("Invert, always invert!") and opened an order to sell a call spread on it. Even then, we weren't getting a fill at the price we wanted. But we finally got a fill on Thursday, after Kerrisdale Capital's X thread rattled the market a bit. You can read about both trades by clicking the image below.

You may be able to still get decent entries on both on Monday. 

Friday Afternoon Update

Note that MicroStrategy's Michael Saylor has been unloading shares during the recent runup. 

Screen capture via Chartmill.

 

If You Want To Stay In Touch

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).

 

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