Trading MSTR with Leverage Using MSTP and MSDD
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MicroStrategy Inc. (NASDAQ: MSTR), now rebranded as “Strategy,” based in Tysons Corner, Virginia, delivers AI-powered enterprise analytics software and services to clients worldwide across various industries. The company offers tools like Strategy One and HyperIntelligence to provide actionable insights and seamless data access. Alongside its analytics solutions, Strategy has adopted Bitcoin as its primary treasury reserve asset, accumulating it through financing and offering investors exposure to Bitcoin via its securities. For many investors, this has positioned MSTR as a de facto proxy for Bitcoin exposure.
But MSTR isn’t just another way to play Bitcoin. Its performance is shaped by a unique mix of corporate structure, market sentiment, and capital market activity. Unlike spot Bitcoin, which trades purely on cryptocurrency exchanges, MSTR is subject to equity market dynamics, such as short interest, institutional positioning, and derivatives trading, which can potentially amplify or distort price movements relative to BTC.
Moreover, MSTR's active issuance of convertible debt and use of proceeds to acquire more Bitcoin has added a leveraged element to its balance sheet, further differentiating it from passive Bitcoin trackers. As a result, the stock might experience more pronounced moves, both upward and downward than Bitcoin itself, especially during periods of high volatility.
These dynamics may make MSTR suitable for certain leveraged trading strategies. Whether bullish or bearish, some traders use MSTR for high-beta exposure to crypto themes due to its volatility and correlation with Bitcoin, but also for the unique price action it generates as an equity instrument.
What Are MSTP and MSDD?
MSTP and MSDD are exchange-traded products offered by GraniteShares that provide 2x leveraged daily exposure to the price movements of Strategy Inc. (NASDAQ: MSTR).
MSTP is the ticker symbol for the GraniteShares 2x Long MSTR Daily ETF. It seeks to deliver 2x the daily return of MSTR shares. This means that if Strategy stock increases in value on a given trading day, 2x MSTP Long ETF is designed to increase by approximately twice that percentage change, before fees and expenses. However, if MSTR goes down the leveraged ETF will fall twice the percentage change. The performance objective resets daily, so returns over periods longer than one day may differ from the 2x multiple due to compounding effects.
MSDD is the ticker symbol for the GraniteShares 2x Short MSTR Daily ETF. It aims to offer 2x the short of MSTR’s daily return. On any given trading day, if MSTR stock declines, MSDD would roughly increase two times MSTR's stock movement. Like MSTP, MSDD resets its exposure daily, and its performance over time may deviate from the stated inverse multiple.
These ETFs are traded on U.S. stock exchanges and can be bought and sold like ordinary shares during market hours. Their value reflects both the underlying performance of MSTR stock price movement on a daily basis.
Why Use MSTP or MSDD?
MSTP and MSDD are leveraged exchange-traded funds that track the daily price movements of Strategy Inc. (MSTR) upside or downside.
If on a given day, Strategy stock (NASDAQ: MSTR) is up by 1%, Graniteshares 2x Long MSTP ETF potentially goes up by 2% before fees and expenses. However, if MSTR stock goes down by 1% at the end of the trading day then Graniteshares 2x Long MSTP ETF might falls by 2% before fees and expenses.
Graniteshares 2x Short MSDD ETF is structured to reflect potentially earn 2 times downside MSTR’s daily stock price movement. For example, If MSTR stock goes down by 1% on a given day, the 2x Short MSDD ETF potentially goes up by 2% and vice versa.
How MSTR Reacts to Bitcoin Price Changes
Strategy’s stock price empirically has exhibited a correlation with the price movements of Bitcoin, reflecting the company’s significant Bitcoin holdings as one of the largest public corporate holders of Bitcoin. Strategy’s market value is potentially influenced not only by its core business operations but also by fluctuations in the cryptocurrency’s price.
MSTR and Bitcoin Correlation
(Source: Trading view)
When Bitcoin’s price experiences upward movement, MSTR’s stock often follows a similar trend, reflecting investor interest in the company’s Bitcoin-related assets. Conversely, declines in Bitcoin price can lead to downward pressure on MSTR’s share price. However, this relationship might not be strictly linear or immediate. MSTR’s stock price might also be affected by equity market factors such as overall market sentiment, trading volumes, liquidity, and investor behavior.
Additionally, Strategy’s capital structure and corporate actions, including debt issuance to fund Bitcoin purchases, may influence stock price volatility independently of Bitcoin’s movements. These factors sometimes result in price deviations where MSTR moves more or less sharply compared to Bitcoin.
Given these dynamics, understanding the interaction between Bitcoin price changes and MSTR stock performance is essential for analyzing the behavior of leveraged ETFs like MSTP and MSDD ETFs, which base their returns on MSTR’s daily price movements. However, please note that these leveraged ETFs do not invest directly in MSTR stock.
Understanding How MSTP and MSDD Function
Graniteshares MSTP and MSDD ETFs are 2x leveraged exchange-traded funds designed to track the daily price movements of MSTR stock with a specific multiplier.
MSTP seeks two times (2x) the daily price movement of MSTR trading for the day. This means that if hyporthetically MSTR stock increases by 1% in a trading day, Graniteshare's 2x Long MSTP ETF potentially increase by approximately 2%, before fees and expenses. Conversely, if MSTR declines by 1%, then 2x Long MSTP ETF is expected to decline by roughly 2%.
On the other hand, GraniteShares 2x Short MSDD ETF is designed to provide two times the inverse (-2x) of MSTR’s daily price movement. If hypothetically, MSTR stock decreases by 1% during the day, -2x MSDD ETF might go up by approximately 2%, and if MSTR stock increases by 1%, -2x MSDD ETF would generally decrease by about 2%.
Both funds reset their leverage daily, which involves adjusting their positions to maintain the targeted multiple based on the closing price each trading day. This daily rebalancing means that returns over longer periods may not correspond directly to twice or minus twice the cumulative return of MSTR, especially during volatile or trending markets.
Understanding these mechanics is important for interpreting the price movements of MSTP and MSDD and their potential behavior in different market conditions.
MSTP Performance in a Rising Bitcoin Market
During periods when Bitcoin’s price is increasing, MicroStrategy’s stock price generally empirically moved upwards, reflecting the company’s significant Bitcoin holdings. GraniteShares 2x Long MSTP ETF, designed to potentially provide twice the daily return of MSTR, is structured to correspondingly increase, responding to the underlying stock’s gains.However, Negative daily performance in MSTR will also result in approximately double the corresponding losses in MSTP. Investors should note that MSTP does not invest in Bitcoin or hold any cryptocurrency directly; its performance is solely linked to the daily price movements of MicroStrategy stock.
Because MSTP resets its leverage daily, its performance aligns with approximately two times MSTR’s daily return on individual trading days.
This structure makes 2x MSTP ETF responsive to potential upward trends in Bitcoin’s price, mediated through MSTR’s stock price movements.
MSDD Performance in Bitcoin Downtrends
In market environments where Bitcoin’s price declines, Strategy’s stock price might reflects downward pressure (based on past data) given its substantial Bitcoin holdings. GraniteShares -2x MSDD ETF is structured to deliver two times the inverse of MSTR’s daily price movement.
As with MSTP, MSDD resets its leverage factor daily, which means that its returns over multiple days may not equate to exactly twice the inverse of MSTR’s cumulative return. Volatility and market fluctuations can lead to performance deviations, particularly over extended holding periods.
Final Word
Trading leveraged ETFs products like 2x MSTP and -2x MSDD ETFs involves a clear understanding of their design and underlying drivers. Both Leveraged ETFs are structured to deliver twice the daily price movement, either in the same or opposite direction of MicroStrategy’s stock, which itself is somewhat influenced by Bitcoin’s price trends as well as company-specific factors.
While MSTP and MSDD ETFs could provide targeted leveraged strategies aligned with bullish or bearish views on MSTR and the broader crypto market.
Understanding the interplay between Bitcoin price movements, MSTR stock behavior, and the mechanics of MSTP and MSDD is essential for informed use of these products within a broader market context.
Risk Considerations
Leveraged ETFs like 2x MSTP and -2x MSDD ETFs are designed for short-term trading and can experience significant volatility. Due to daily resets and compounding effects, holding these products over extended periods may lead to returns that differ substantially from the expected multiples of the underlying asset’s performance. Understanding these risks is crucial before engaging in leveraged trading strategies.
Leveraged ETFs by GraniteShares
| Product name | Ticker |
|---|---|
| US | |
| MSTP | |
| MSDD |
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