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Similar to my expectation of $MSTR and friends to trade at 0.75-0.9 mNAV as the market gets exhausted of constant ATM (I have believed this for a year and a half) , I now have a new an idea for STRC/SATA.

When trading at par, these puppies have no upside potential as the company hardly lets them trade above $100.01. On an individual daily payout of $0.03 for each of these (SATA actually paying it daily and STRC paying $0.48 twice monthly), the day to day downside risk is WAY more than the upside potential even including the tiny (day to day) value of the dividend.

Sure, if you want to hold your nose and just hold for years, you may not worry about it dropping to $90 here and there as long as the income keeps flowing. But, long term holders don’t influence the price much at all. Shorter term holders set the price along with short term arbitragers. People are giving up on trying to arb the ex dividend date. The better arb for them seems to be to buy this when it trades at $95 or $90 a few times a year and hold it back to par or at least half way back. Myself and others have done this more than once. Even short term guys like me have 4 advantages over people buying at $100 and then getting skittish snd selling if it drops (or with a stop loss)

1. Higher effective yield. STRC pays $11.50 of dividends a year which is around 12.5% if I buy in the low $90 area.

2. Actual upside potential vs the guy who buys at $100 with the company selling new shares at $100.01.

3. Less downside potential. For one, it can only drop to zero so technically less downside. For two, other traders responding to points 1 and 2 above have much more incentive to buy in the mid to low 90s than they did in the upper 90s. Another point is that since stop losses are apparently (and imo foolishly) popular right now with these products, it makes sense that there will be times like this when there’s lots of burst selling over a few days when par is lost. Once those stop losses are behind us, traders ride it back up slowly. I do expect people will quickly realize stop losses are fairly foolish with this product. Put protection would be better probably, though would also eat into dividends.

4. Dividend increase will likely follow since it’s been trading low. If you buy at par, this probably won’t happen. Not only is the dividend increase a bonus for the shorter term holder but the holder knows it’s like catnip to the masses and should help price rise. Of course I doubt 0.25-0.5% does much but every little bit helps.

I’m currently a holder of STRC, after making I think almost 500k on it months ago, I’m willing to try to milk it one more time. I’m risking much less than before and right now don’t know how long I’ll hold it.

So, my theory is that equilibrium for STRC shouldn’t be an expectation of it to trade at par as there’s way more incentive for buying in the mid to low 90s. So, they can either accept that it will typically trade between $90 and $100 or they can try to shift that upward by $5 or $10 but either way I expect about 10% normal trading range for this product. Will it ever have less volatility in the future? Maybe. At that point if it was really that successful I’d also expect the dividend to be much lower.

I’m not bullish this product long term. I actually expect it has a decent chance of failure but that is largely based on my overall bearishness with Bitcoin. Is it foolish for me to buy in? Maybe. You can only milk a cow so much sometimes.

People now seem to expect a 3 cent daily dividend will keep SATA at par which is pretty comical. If I owned SATA right now I’d sell it for STRC given all the points above, but that’s just me.