Strategy(MSTR.US)The most shorted stocks in the US market, arbitrage trading emerges

According to FactSet and Goldman Sachs data, billionaire Michael Saylor’s Strategy firm (MSTR.US), as a major Bitcoin holder, is seeing its stock being “heavily shorted”—a market term that refers to strong bets on the stock price continuing to fall. However, some analysts say that this positioning may not necessarily reflect investors’ expectations for the stock price to keep dropping.

In a report Goldman Sachs released last week, based on the metrics it tracks, the size of Strategy’s (MSTR.US) bearish short exposure is equivalent to 14% of its then $34 billion market cap, making it the stock with the highest shorting ratio in that report. In the same period, the crypto exchange Coinbase (COIN.US) ranked fourth with an 11% short interest ratio. The report tracked short-position dynamics for stocks with market caps above $25 billion.

This shorting trend is occurring against the backdrop of Strategy’s Bitcoin holdings showing approximately $7 billion in unrealized losses. Since 2020, when the company added Bitcoin to its balance sheet, it has cumulatively held 717,722 Bitcoins, currently valued at about $47 billion. As of the time of this publication, its market cap is about $44.52 billion, even though the stock price has fallen by a cumulative 12% so far this year. Meanwhile, after Bitcoin hit a peak of $126,080 per coin on October 6, the trading price as of the time of this publication is $66,653.26 per coin.

According to reports, analysts attribute the increase in short positions to a basis trading strategy—one that profits by capturing the price spread between two correlated markets. In practice, traders can simultaneously buy a Bitcoin spot ETF (such as BlackRock’s IBIT) and short Strategy stock, allowing them to arbitrage when the premium of Strategy relative to its Bitcoin holdings narrows. If paired with offsetting futures contracts, they can additionally earn funding-rate income while maintaining a market-neutral position.

Brian Brookshire, an expert at a Bitcoin treasury company, said: “I suspect that the large short positions still largely stem from the MSTR/BTC basis trade. In particular, the top market maker Jane Street has recently clearly built an unusually large IBIT position.”

According to the latest filed 13F institutional holdings documents, Jane Street has purchased more than 7 million shares of BlackRock’s iShares Bitcoin Trust (IBIT), and at the same time held a large Strategy stock position.

Of note, on February 25, Anchorage Digital co-founder and CEO Nathan McCauley disclosed that the digital bank allocates Strategy’s perpetual preferred stock STRC (STRC.US) in its balance sheet.