Defiance Launches New MSTR ETF with Leverage and Income
- MST offers 150% tp 200% daily exposure to Strategy with income generation.
- Strategy reported a $4.2 billion quarterly loss with a $5.9 billion Bitcoin valuation decline.
- The fund uses credit call spreads to generate income while maintaining leveraged exposure.
Defiance ETFs has launched a new exchange-traded fund: the Defiance Leveraged Long + Income MSTR ETF (MST). It offers leveraged exposure to Strategy Inc. (MSTR), formerly MicroStrategy, while aiming to generate regular income through an options strategy, bringing a new investment approach to the Bitcoin-proxy investment landscape.
MST seeks to deliver 150% to 200% of Strategy's daily performance while simultaneously generating income through a credit call spread strategy. This launch comes amid Strategy's quarterly earnings report showing a $4.2 billion loss as the company's Bitcoin holdings face valuation challenges, the Wall Street Journal reported Thursday.
The new ETF represents an evolution in how investors can gain exposure to Bitcoin through public equities. Strategy, a software company with a Bitcoin acquisition strategy, saw an unrealized fair value loss of $5.9 billion on digital assets in the first quarter, per WSJ reporting.
Sylvia Jablonski, CEO of Defiance ETFs, stated in the company's press release, "Retail investors want the thrill of leverage and the comfort of income. $MST combines leveraged exposure to Strategy's momentum with weekly payouts to balance the journey."
The fund's prospectus details how it employs derivatives for leveraged exposure to Strategy while using credit call spreads for income generation. These spreads involve selling a call option and buying another with a higher strike price, both sharing the same expiration date, implemented on approximately 100% of the fund's net notional exposure.
How MST Works
The credit call spreads described in the prospectus help generate premium income while managing risk. This approach can potentially offset losses if Strategy's share price rises above the upper strike price.
The fund's prospectus explains that while this income strategy limits potential gains from leveraged increases in Strategy's stock price, it provides premium income with predefined loss limits. The ETF plans to distribute income at least monthly.
According to the prospectus, the leveraged component aims to provide daily returns of approximately 150%-200% of Strategy's performance before fees and expenses. The fund's adviser adjusts the actual leverage based on market conditions and other factors.
The ETF launch timing coincides with Strategy's latest earnings report showing a 3.6% revenue decline to $111.1 million, falling short of analyst expectations, the WSJ reported. This represents a widening loss compared to the $53.1 million loss a year earlier.
Bitcoin Market Conditions
Defiance's press release notes Strategy has grown over 4,000% since December 2022, driven by its Bitcoin strategy and data analytics business. However, Bitcoin prices have faced recent headwinds amid concerns about President Donald Trump's trade war potentially causing a recession.
Despite challenging market conditions, the WSJ notes Strategy raised its full-year target Bitcoin yield from 15% to 25% and announced a $21 billion common stock offering to purchase more Bitcoin, demonstrating continued confidence in its strategy.
The fund's prospectus lists an annual management fee of 1.31%.
