Quote from: d_eddie on January 21, 2025, 10:17:38 PM

Thanks for your reply, Torque.

Quote from: Torque on January 21, 2025, 07:40:10 PM

Quote from: d_eddie on January 21, 2025, 03:22:05 PM

It seems that each time Michael Saylor announces his latest purchase of bitcoin, the price dumps. This is conterintuitive, but one explanation is that after the announcements, the bears feel safe to short since there's going to be no huge MSTR buying pressure for a few days.

I think the real answer to this question is buried at the end of this article:

https://www.cnbc.com/2025/01/21/david-einhorn-says-we-have-reached-the-fartcoin-stage-of-the-market-cycle.html

Quote

Shorting leveraged bitcoin ETFs

Greenlight took advantage of the craziness around crypto during the fourth quarter by betting against some popular ETFs linked indirectly to bitcoin.

The two funds the firm focused on were the T-Rex 2X Long MSTR Daily Target ETF (MSTU) and the Defiance Daily Target 2X Long MSTR ETF (MSTX). Those funds use derivatives to try to achieve two-times the daily returns of MicroStrategy,

a software company that has turned itself into a bitcoin treasury vehicle in recent years.

The funds have at times struggled to achieve that goal due to MicroStrategy’s volatility and little supply of the derivatives most easily used to get the leveraged returns.

The letter said Greenlight took short positions against those funds during the quarter, partially offset by owning MicroStrategy stock in an arbitrage trade that was a “material winner.”

TL/DR - So shorting MSTR Long 2X ETFs while owing MSTR stock, an arbitrage play.

Do these 2x ETFs track bitcoin or something else? Do Greenlight add on top of their short after MSTR buys, or is that an automatic effect of the makeup of the ETFs? I honestly don't understand the mechanism hinted at by the article.

I believe the two ETFs track the MSTR stock index, but at 2X leveraged. It sounds like Greenlight was shorting them, partially hedged by owning MSTR stock directly as well. Someone correct me if I'm wrong, but I'm assuming was the arbitrage trade was taking advantage of the volatility swings in price gap between the two.

The process of maintaining and rebalancing a leveraged ETF fund sounds complicated and quite the headache, with transaction costs that can eat into the investor's returns.

Here's an article that explains it in more detail:

https://www.investopedia.com/articles/exchangetradedfunds/07/leveraged-etf.asp