Summary MSTU is a 2X leveraged ETF on MSTR, which itself is a leveraged play on Bitcoin, offering high potential returns and risks. MSTU's extreme volatility, with an implied volatility of 180% and an ATR of 19%, makes it suitable only for short-term trading. MSTU has outperformed during Bitcoin bull runs but underperformed during bearish phases, emphasizing the importance of timing in leveraged funds. I recommend MSTU as a speculative Buy during bullish Bitcoin phases, but caution against its high volatility and unsuitability for long-term holding. Bitcoin’s relentless ascent since November has brought sharper focus into not only the various funds that give investors exposure to Bitcoin itself, but also the derivatives of the OG alt-coin. Perhaps no derivative has been more talked about than MicroStrategy (MSTR), the company that has made it a mission to own as many Bitcoin as possible. The company owns more than 460k Bitcoins, making it by far the largest single corporate owner of Bitcoin. That means its tiny software business is completely irrelevant, and its stock therefore moves more-or-less in tandem with Bitcoin. That fact has led to funds that track MSTR on a leveraged basis, such as today’s topic, the T-Rex 2X Long MSTR Daily Target ETF (MSTU). This fund does exactly what it sounds like; it’s a 2X leveraged long fund on shares of MSTR. Any leveraged fund carries with it enormous risk, and we’ll cover those below. But if you’re bullish on Bitcoin, it’s difficult not to be bullish on MSTU. What is MSTU? This fund attempts to gain 2X daily exposure to MSTR shares, so theoretically it should move exactly 2X in percentage terms what MSTR does on any particular day. It’s not quite that simple in reality, but that’s essentially what you’re getting. Of course, with any leveraged fund there is tracking error. Leveraged funds are not intended to be buy-and-hold vehicles because of this tracking error. If you decide to own MSTU or any other leveraged fund, it’s best used in small doses and for shorter time frames. Leverage means potential returns are greater, but so is the risk. We’ll come on to that in a bit, but let’s first take a look at how MSTU generates its leverage. Seeking Alpha It owns a lot of MSTR shares, but also a bunch of call options. We can see these are extremely short-dated options, with all of them expiring within eight days of the as-of date of this holdings list. Options are a great way to generate leverage, but at significant cost as options decay over time, and particularly if their expiry is near, like the ones on this list. With any ETF, you should know what the fund actually owns and not just take whatever the stated goal of the fund is at face value. If you consider that Bitcoin is essentially a play on risk-on behavior in financial markets, MSTR is a leveraged version of Bitcoin, and MSTU is a leveraged version of MSTR, you’re dealing with a lot of layers of risk. And one thing we can probably all agree on is that risk in MSTU is very high. If that kind of thing suits you, it can be a great trading vehicle. If it doesn’t, you should move on to something else. Speaking of risk, let’s dig in a bit there to quantify what we’re dealing with. Below is the volatility skew for MSTU options that are expiring near the end of February, so right at one month out from today. optioncharts.io The implied volatility of MSTU’s is about 180% right now, and it changes everyday so it can be higher or lower. For reference, the S&P 500’s implied volatility is roughly 13%, so we’re looking at volatility that is something like 14X that of the S&P 500. This is one of the most volatile securities I’ve come across, which can be great for trading opportunities if you’re right, but please consider the fact that you could be wrong. Seen another way, MSTU’s average true range on a 14-day basis is pretty incredible. Right now, its ATR is 1.989 as we can see below. StockCharts With a share price of $10.45 as of Friday’s close, that implies MSTU’s average daily range is 19% of its share price. While ATR also changes over time and fluctuates day-to-day, this gives us another idea as to just how volatile this thing is. If you’re not comfortable with the value of your MSTU holdings moving around 19% each day, it’s not for you. Bitcoin still looking bullish Now that we have the risks out of the way, let’s take a look at why you may want to consider MSTU. We’ll start with a chart of MSTU, but I’d argue it’s more important we focus on MSTR (the underlying stock for this fund), and Bitcoin itself. StockCharts The MSTU chart is limited because it’s only existed for a few months. For what it’s worth, we can see some of the extreme moves this thing makes day-to-day, with Friday being a good example as it fell more than 10%. That kind of move is pretty normal for MSTU, as incredible as that sounds. Now, if you’re interested in MSTU, it’s probably because you’re bullish on MSTR. Let’s take a look at how MSTU has performed relative to MSTR to get an idea of the difference of owning the two. StockCharts During the massive bull run MSTR had that culminated in the post-election top, MSTU outperformed by 184%. Remember this is just outperformance ; it went up on an absolute basis much more than that. The flip side is that during the period since then, MSTU has underperformed by 46% or so. This is the trouble with leveraged funds; any significant drawdowns are extremely costly. I’d say MSTU executed on its 2X leverage goal pretty well during these periods based on this data, for what it’s worth. Now, continuing our discussion from above, MSTR is essentially a leveraged play on Bitcoin, and MSTU is a leveraged play on MSTR. So how does MSTU perform against Bitcoin itself? StockCharts During the bull run into November, MSTU outperformed Bitcoin by 530% . Part of that was because MSTR massively outperformed Bitcoin, and then MSTU doubled that outperformance (more or less). MSTU during this bearish phase has underperformed Bitcoin by 64%, however, giving back nearly all of the prior outperformance. This is why timing is incredibly important when it comes to using leveraged funds. If I take all of this into account, it is my view MSTU does a nice job of double leverage on MSTR. It also does a good job of tracking the relative price movements of Bitcoin, outperforming when it should, and underperforming when it should. You can use that however you will, but I’d argue MSTU is executing well on its stated goal. Let’s finish up by focusing on MSTR itself, and of course, Bitcoin. StockCharts MSTR is consolidating since the November peak, and one could argue this is a bull flag, which I’ve drawn in with dotted blue lines. We’ll see if that ends up being the case, but if I ignore everything and just look at this chart, I can’t help but be bullish until proven otherwise. The flag pattern is about to complete one way or the other; the direction it breaks will likely show us the way in terms of the next really big move on the stock. The bulls have the rising RSI and PPO on their side just as the flag nears completion, and given this pattern itself is a bullish consolidation pattern, I’m inclined to remain bullish unless proven otherwise. What would make me lose faith in this pattern? Closing below the flag pattern is a big red negative, and trading below the early-January low of ~$300 means we’re probably starting another bearish phase. With all of this discussion predicated upon Bitcoin, it would be irresponsible to neglect that chart, so let’s take a look. StockCharts Bitcoin has been consolidating since November, and I’ve drawn in the rectangle that contains nearly all of the trading since then. Again, this is a bullish consolidation. Rectangles that form after strong uptrends are bullish pauses, so unless this pattern resolves below ~$90k, I have no reason to think Bitcoin’s rally is done. We have a bullish PPO that shows momentum in positive territory and rising. The RSI is more neutral as it’s spent the past month or so bouncing between 40 and 60. One clue that we have something more on our hands is a sustained move over 60. We don’t have that yet. Wrapping up My feelings on MSTU have to be derived from Bitcoin itself. Bitcoin is a play on risk-on sentiment in financial markets, MSTR is a leveraged play on that, and MSTU is leveraged on MSTR. You end up with a fund that is 14X more volatile than the S&P 500, and extreme leverage to the price of Bitcoin. I like Bitcoin unless its pattern resolves lower, and I’m happy to change my stance if and when that occurs. For now, I like Bitcoin, which means I have to like MSTR, and by extension, MSTU. Let me be extremely clear one more time; MSTU is unbelievably volatile and is not suitable for everyone. It’s probably not even suitable for a sizable portion of your portfolio, but that’s a choice each person must make for themselves. For me, I like MSTU during bullish phases for Bitcoin, and if we get a breakout in Bitcoin above its rectangle consolidation, the returns in MSTU could be absolutely explosive. For that reason, I like MSTU as a trading vehicle, and I'm initiating with a speculative Buy rating with the caveats noted above.
