Disclaimer: The analyst who wrote this article owns shares in Strategy.
Strategy’s (MSTR) aggressive bitcoin
acquisition strategy has dramatically boosted the value of its convertible debt.
With bitcoin steady near its record price and the company’s shares rebounding toward $450, five of the six bonds outstanding are deep in the money, meaning the stock price exceeds their conversion prices. Only the 2029 note, with a high $672.40 conversion price, remains out of reach.
The Tysons Corner, Virginia-based company issued convertible notes totaling $8.2 billion in notional principal with ultra-low average coupons of just 0.421%. The bonds, which mature between 2028 and 2032, carry a set price based on MSTR and BTC levels at the time of issues at which the debt can turn into the common stock.
MSTR stock has rebounded from as low as $235 three months ago and is within sight of late last year’s $543 record. The rally has pushed the bonds’ market value to $13.4 billion, roughly $5.2 billion above their notional value. The premium reflects how much investors are willing to pay in secondary markets, driven by the bonds’ potential to convert into valuable equity.
Of late, however, Strategy has paused issuing new convertible notes. That may be due to more cautious sentiment as reflected in the options market.
As of July 15, MSTR’s implied volatility sits at 53.1%, well below past highs above 200%. Implied volatility is an indication of how much the options traders believes the stock will move in the future based on their market positioning.
Open interest remains healthy at over 2.4 million contracts, but both the open interest put-call ratio (0.93) and the volume put-call ratio (0.62) indicate neutral sentiment, suggesting traders are not aggressively betting on a major surge in the stock. A put is a cautious position that offers protection against price declines in the underlying asset while a call is a bullish instrument that allows traders to profit when the price rises.
Additionally, trading volume is just 20% of its 30-day average, hinting at reduced speculative interest.
This muted options activity implies that while MSTR’s price is high enough to put five of the six convertible bonds deep in the money, there may not be the same frothy market enthusiasm that allowed the company to issue convertibles at ultra-low coupons and favorable terms.
Investors might demand higher yields or lower conversion prices for any new issuance, which could dilute existing shareholders sooner.