Strategy fails to list options on its flagship preferred, STRK
Michael Saylor’s flagship preferred share, Strike (STRK), was conspicuously absent from his company’s listing announcement this morning.
The company instead announced that investors may now purchase calls and puts on Strife (STRF), Stretch (STRC), and Stride (STRD), as well as the earlier options chain for Strategy common stock (MSTR).
No options chain exists for STRK — despite its Series A seniority and market capitalization exceeding STRD and STRF, respectively.
Strike is unique not only because it was Saylor’s first attempt at selling preferred shares with perpetual dividends, but because the most bullish type of preferred share that the company has ever offered.
No call options on Strategy’s most bullish preferred shares
STRK pays a perpetual annualized dividend rate of 8% USD, plus it will convert into 0.1 MSTR shares if MSTR rallies to $1,000 per share.
For context, the all-time high of MSTR is $543 and it’s currently trading below $330.
This embedded call option in STRK — i.e. its ability to convert into 0.1 shares of MSTR once MSTR reaches $1,000 — is unique among the company’s preferred share offerings.
Neither STRF, STRC, nor STRD offer any conversion feature based on the price of MSTR.
In July of this year, STRK briefly rallied above $129 per share — 29% higher than its $100 liquidation preference on which the company pays 8% dividends.
Briefly, investors hoped that its embedded call option might realize some value as MSTR rallied north of $457 per share.
Unfortunately, MSTR has declined 27% from those July heights. Similarly, STRK has declined 26% from its July peak.
Read more: Is MicroStrategy’s $563M STRK really oversubscribed?
Despite STRK’s notable absence from Strategy’s new options chains, Irresponsibly Long MSTR investors claimed new options on the other three series of preferred shares would somehow add “more capital” to Saylor’s ecosystem.
Options rarely add capital to an ecosystem. They are derivatives whose value derives entirely from their underlying securities like MSTR.
They offer speculators the ability to access financial leverage and charge a large bid/ask spread for that service.
Large institutions like market-makers and quantitative trading firms earn the vast majority of profits from options trading. Retail investors and less sophisticated investors who buy options — sometimes winning, but mostly losing — provide a steady stream of profits to these Wall Street titans.
In other words, rather than a causative source of liquidity for common stock, options mostly correlate with liquidity.
As trading volumes increase and retail investors request options contracts for greater leverage, institutions become willing to market-make in these contracts to systematically extract profits.
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