Options Corner: With The Bears Leaving, Strategy’s Current Underperformance Could Spell Opportunity
Under the current market regime, rising short interest always attracts eyeballs. In theory, an accumulation of bearish pressure represents an awful harbinger for the targeted security. However, these short traders risk the underlying asset moving in the wrong-to-them direction, which is northward. Interestingly, though, relatively very few speculators want a piece of the short action against Strategy Inc (NASDAQ:MSTR). For contrarian investors, this dynamic could be a compelling opportunity.
Usually, the prospect of short squeezes offers an intuitive argument for bullish speculators. Under a typical transaction, investors initiate a position in a security by buying to open. However, short traders initiate their speculative activity by selling to open. These shares were first loaned out by a broker, which means that at some point, bearish speculators must return the borrowed securities.
For a short trade to be profitable, then, the underlying stock must fall in value. Later, the bears buy back the securities on discount and return them to the broker, pocketing the difference. But either way, the return of borrowed assets must happen. Therefore, if the targeted security shoots higher, short traders have a difficult decision to make.
Obviously, the prudent ones cut their losses early. However, to close a short position, the transaction involves buying to close. That’s what creates the short squeeze.
With MSTR stock, the security — which effectively operates as a proxy for the cryptocurrency market — previously witnessed sky-high short interest, particularly during 2022 and 2023. However, a strong run last year, followed up by an impressive performance this year, has apparently led to an unwillingness to …
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