A cryptocurrency strategy plans to raise $500 million to buy more Bitcoin. This will be achieved through a new preferred equity offering that involves selling 5 million Series A “Stretch” shares, priced between $90 and $95 each. These shares will start with a 9% dividend to help fund Bitcoin purchases. The shares are senior to most existing equity but junior to some earlier preferred and convertible securities. Unlike others, the Stretch shares offer cumulative, adjustable dividends that can rise monthly but may only decrease slightly each year. Currently, the company has over $71 billion in Bitcoin. Its stock recently rose to $428 and gained an additional 0.4% after announcing the offering. CEO Michael Saylor is expanding Bitcoin holdings using creative financing. We see Mr. Saylor’s strategy as turning the company into a vehicle that leverages Bitcoin. While this could drive prices higher, it also makes the stock more sensitive to changes in the crypto market. Derivative traders should prepare for increased implied volatility, which is currently around 95%—much higher than Bitcoin’s volatility of about 55%. Injecting at least half a billion dollars into the market creates a known demand for Bitcoin soon. Because of the strong historical correlation between the two assets, we see this as a short-term bullish sign for the stock price. Therefore, call options might be a good way to speculate on a price increase from this significant purchase, which will add to the existing 226,331 BTC holdings. However, the new share structure also brings a long-term liability due to the cumulative and adjustable dividend. If Bitcoin’s price stops growing or falls, paying this debt could put financial strain on the company, creating a risky situation. Thus, we think put options could serve as a hedge or a direct bearish bet, especially since the stock dropped faster than Bitcoin during the 2022 crypto winter. This all-in strategy creates an outcome that relies heavily on a single asset class. We believe strategies that profit from significant price movements in either direction, like a long straddle, are especially appealing. This position would take advantage of the expected price swings, regardless of whether this bold expansion turns out to be a success or a mistake.

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