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A few thoughts about $STRK, obvious to some, but I know a lot of people don't follow this so closely and I think it's potentially a very valuable tool in the bitcoiner toolkit.

$STRK pays an $8 qualified dividend per share per year. $STRK can be converted 10:1 into $MSTR when $MSTR is over $1000 per share. At that point the convertibility is therefore worth $100. With $MSTR at $2000 the convertibility is worth $200, etc.

At the moment $STRK is priced at $107 and $MSTR at $378. IMO this means the conversion is priced at $37.8 and the remaining $99.2 is based on the $8 per share yield (effectively an 8% yield).

As $MSTR goes up well over $1000, $STRK will trade in lockstep with $MSTR. AKA as $MSTR goes from $2500 to $5000 $STRK will go from $250 to $500 + a small premium for the $8 per share coupon and the fact that $STRK is higher in the capital stack of @Strategy than $MSTR.

If $BTC does a 5x to $500k you could imagine that $MSTR might do a ~10x to $4000 and in that case $STRK would do a 4x to $400 (plus the aforementioned premium). As $STRK goes up it still maintains its $8/share qualified dividend, but that equates to an effectively lower yield of 2% in the $400 example. So the portion of $STRK that's priced based on it's yield will go down as $MSTR goes up.

So in however long it takes $BTC to go to $500k would you rather get a 5x with $BTC and 0 counterparty risk, a 4x with $STRK and an $8/share coupon (and counterparty risk), or a 10x with $MSTR and no coupon and counterparty risk. Also keep in mind that once $MSTR is over $1000, $STRK's performance should match $MSTR's (aka outperform bitcoin's), but the yield will be much lower by then. That's my outlook, do with it as you will, No recommendations here, not financial advice, just some thoughts.

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Rasheed Donnelly 7mo ago

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FTB 7mo ago

$69.2 not $99.2 in paragraph 3, apologies!

FTB 7mo ago

And also that means my effective yield calculation is wrong. $8 per share on $69.2 is 11.56% not the 8% I listed in the original post! 🤦‍♂️

dvo 7mo ago

I’m disappointed with myself by how much I enjoyed reading this post

FTB 7mo ago

Here's something interesting.

I was trying to steel man my argument in favor of $STRK, and my belief that there will be near zero incentive to convert and I came across an interesting argument. $STRK doesn't have an options market. So if you could imagine a future where $MSTR is $10k per share, and $STRK is $1k + a small kicker for the 0.8% yield and liquidation preference, someone sitting on a large position of $STRK that's basically yielding nothing could convert to $MSTR and sell covered calls against the position for a much higher effective yield.

So that begs the question: can you launch an options market on top of a preferred stock. Answer according to Grok: yes, but it's so far been very rarely done.

So if they don't do it, I do think you'll have a conversion bleed over time of people willing to give up the liquidation preference (which won't be worth much if @Strategy is the largest company on earth anyway), in favor of the higher yield that selling covered calls can offer. And by that point I think @Strategy would love for people to convert, so maybe they're incentivized to not launch the options market. Something to think about!

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