Jim Chanos and Michael Saylor see opportunities relating to MSTR shares and bitcoin. Alongside Chanos, a broad group of investors are shorting MSTR shares. This includes convertible arbitrageurs, index hedgers and other short sellers pursuing trades relating to the firm’s capital structure and prospects. S3 Partners data illuminates these trades.

• MSTR Short Interest: Short interest increased by $5B in 2025 to hit an all-time high of $12 billion on May 12th

• Convertible Arbitrage: Estimated 36% of shares short related convertible hedges

• SI Context: MSTR equity represents 0.18% of Russell 3000 constituent market cap and 0.92% of Russell 3000 constituent notional short value

Buy Bitcoin / Sell MSTR:

In a CNBC interview on May 14th, Jim Chanos revealed he is long bitcoin and short MicroStrategy—a pairs trade that mirrors Michael Saylor’s strategy in a sense. Saylor issues equity at a premium to NAV to buy BTC, while Chanos shorts that premium and holds the underlying asset.

At the center of both trades is the spread between the market price of MicroStrategy shares and their bitcoin-adjusted book value. As of May 21st, MSTR trades at a roughly 70% premium to its bitcoin holdings, depending on how the firm’s remaining enterprise is valued, with a market capitalization of $112B and bitcoin holdings worth $62B.

That premium is what Saylor leverages and Chanos targets. If bitcoin rises but the premium compresses—or dilution outpaces gains—Chanos’ trade works. Like any arbitrage, the spread can widen before it narrows, as seen in the GBTC trade circa 2021.

One thing working in Chanos’ favor, along with others shorting MSTR, is the low cost of borrowing shares to sell short. New borrows are being priced for hedge funds at 30bps fee in S3 Partners Black App. This helps to keep a lid on the carrying cost of the trade until the spread narrows. With more than 250M free floating shares and 27.4M shares short, the low cost of borrow is likely to persist. The inexpensive borrow does not make this a painless trade to hold in perpetuity. Bitcoin is not generally accepted as collateral making this a less capital efficient trade than other arbitrage opportunities, as cash is required both as collateral for the MSTR short and for the long bitcoin purchase. Bitcoin ETFs may improve efficiency to at least some degree. Equity options may offer a more efficient short, but options also introduce valuation risk.

Convertible Hedging:

Convertible arbitrage strategies that hedge long positions in convertible bonds with short positions in the underlying equity are a persistent source of short demand for MSTR shares. We estimate the short interest attributable to convertible arbitrageurs at 9.9M shares or 36% of the current short position. We used S3 Partners MAP product to isolate holders of convertible bond positions that are likely to be hedged. Using the conversion ratio and a delta figure modeled by Bloomberg we estimate the current short position attributable to convertible arbitrageurs by multiplying the three figures together.

The convert hedge varies as the MSTR share price fluctuates in relation to the conversion price of the bonds, however the moneyness of the embedded options and long duration can blunt the impact of price changes in the underlying equity. For example, the MSTR 0% 2030 convertible bond was priced on February 20th and had a modeled delta of 79% per Bloomberg on its first day of trading. Since then, the MSTR equity price has increased by more than 30% while the delta has increased to just 84%.

This framework can also be used to evaluate the short interest related to the firm’s convertible preferred shares which trade under ticker STRK. There are currently 7.3M shares of STRK outstanding, which can be converted into 730K shares of MSTR. That 730K represents the upper limit of the MSTR short interest relating to STRK. The vast majority of current STRK holders are not arbitrage strategies, so this trade likely has a negligible impact on short interest. This may change with time, as the firm announced a $21B at-the-market program for STRK shares in March.

Index Hedge:

Estimating directional short positions vs index hedging activity can shed some light on sources of short demand. Comparing a Russell 3000 firm’s share of index market cap with its share of index notional shorts provides insight into exceptional levels of short interest, even in large cap stocks. MicroStrategy equity represents 0.18% Russell 3000 market cap and 0.92% of aggregate short valued in index constituents. That makes MicroStrategy the 91st ranked constituent by market cap and the 7th ranked by notional short value.

This framework suggests a probable boundary of index hedging in MSTR could be set at 0.18% of the total short value, equivalent to 5.3M shares or $2.2B. The remainder of short interest, 22.1M shares or $9.2B, could then be attributed to sources of short demand away from index hedging.

Conclusion:

We estimate MSTR short interest relating to convertible arbitrage at 9.9m shares and index hedging at 5.3m shares, summing to 15.2M shares. Subtracting that hedge estimates from the 27.4M shares of total short interest shares leaves 12.2M shares of MSTR short positions, equivalent to $5.1B.

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The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.