Victor Haghani, Founder and CIO, Elm Partners

[00:00:01] Hello, this is Dean Curnutt and welcome to the Alpha Exchange, where we explore topics in financial markets associated with managing risk, generating return, and the deployment of capital in the alternative investment industry.

[00:00:19] It was a pleasure to welcome Victor Haghani, the Founder and CIO of Elm Wealth Management, back to the Alpha Exchange for an engaging discussion on those turbocharged financial products called leveraged ETFs.

[00:00:31] Our conversation is focused on the large product suite built around MicroStrategy, a software company whose mission appears to be solely focused on the accumulation of Bitcoin.

[00:00:42] It's self-a-stock realizing between 75 and 150 vol, MSTR's two-times daily return products, MSTU and MSTX, have experienced one-month delivered vol levels approaching 400.

[00:00:56] Victor shares the recent work he and team have done to model scenarios for these products based on price and vol assumptions for MSTR.

[00:01:05] The punchline is that investors need to carefully consider the risk exposure they are getting and be prepared for potentially large losses should the underlying stock fall and volatility rise.

[00:01:16] In the course of our discussion, we contemplate the directionality of the MSTR premium to its holdings of Bitcoin and whether that itself is linked to the price of Bitcoin.

[00:01:26] Lastly, we touch on a new product proposed by ETF provider Battleshares that targets a daily long short exposure to two assets for which the Elm team has built a model and posted on their website.

[00:01:39] I hope you enjoy this episode of the Alpha Exchange, my conversation with Victor Haghani.

[00:01:46] My guest today on the Alpha Exchange is Victor Haghani.

[00:01:49] He is the founder and CIO of Elm Wealth, a boutique asset management firm doing some interesting stuff in dynamic indexation.

[00:01:58] Victor, it's great to have you back on the Alpha Exchange.

[00:02:02] Oh, thanks, Dean.

[00:02:03] It's great to be back on.

[00:02:04] Love it.

[00:02:04] Well, I've always really appreciated your very kind of rigorous and academic approach to thinking about some of the complexities in markets.

[00:02:14] I'm recalling during that so interesting era of exceptionally low to negative interest rates, your work on the perpetual bond where the interest rate is zero.

[00:02:24] Oh, yeah, yeah.

[00:02:25] The perpetuity paradox.

[00:02:26] Yes.

[00:02:27] Yes.

[00:02:27] The perpetuity paradox is so interesting.

[00:02:30] So we are out of that, for sure, probably forever, or maybe forever is too long a time.

[00:02:35] But for this foreseeable future, negative rates don't seem to be a thing anymore.

[00:02:41] Even Japan is moving away.

[00:02:43] But there are, as there always are, some really fascinating things going on in the world of finance.

[00:02:49] And many of them present themselves based on the urge to create products.

[00:02:55] There's always some new version of a product coming to the market.

[00:03:00] Zero days to expiration options.

[00:03:02] That's a new thing.

[00:03:03] It introduces new risk dynamics.

[00:03:06] And, of course, the topic of this podcast is going to be leveraged ETFs, a product that you've been looking at and done some recent work on.

[00:03:16] And what we'll do is focus on everybody's favorite stock to look at these days, MSTR.

[00:03:22] Michael Saylor's Bitcoin buying engine that shows no signs of sputtering, at least now.

[00:03:29] But I personally put myself in the skeptical camp.

[00:03:31] So you're in the process of working on a piece here, specifically on the MSTR leveraged ETF complex.

[00:03:39] So maybe let's start with a little bit of background on your thinking on not just MSTR, but the leveraged ETF universe.

[00:03:48] What got you interested in it?

[00:03:51] And just broadly, what are your big picture thoughts on the kind of risk characteristics of this product set?

[00:03:57] Yeah.

[00:03:57] So it's something we've followed for a number of years.

[00:04:00] We had already written a couple of articles on leveraged ETFs and just shorting and leveraging in general and how the return patterns that you get can be kind of unexpected when you're dynamically rebalancing your portfolio to keep a long and a short that matched with each other, for instance.

[00:04:20] So about a week ago, we wrote a piece on leveraged ETFs in general, and it was really motivated by the battleshares ETFs that are currently under review by the SEC, where they're going to basically give you a two times leverage long exposure to some leading company like a Coinbase or NVIDIA or a Tesla.

[00:04:44] And then it's going to give you one times a short exposure to the legacy business.

[00:04:49] So there's going to be an ETF if this gets approved and they bring it.

[00:04:53] It's going to be long two times Tesla and short one time Ford.

[00:04:58] And we were like, wow, we hadn't looked at that before.

[00:05:01] You know, we were always looking at ETFs that were long 2x of something or short 1 to 2x or something, but not something that was long and short.

[00:05:09] And we realized that it would be useful for people to have a tool to look at that and to see what the return distributions would look like over longer periods of time.

[00:05:21] And it's a function of not just the volatility of the long and the volatility of the short, but also their correlation with each other.

[00:05:29] And so we tried to build something that people could use to play around with it and think about it.

[00:05:34] And, you know, the question of long term returns in these leveraged ETFs, of course, they say the purpose of this ETF is to give you two times the daily return for the ETF based on the underlying.

[00:05:47] But ultimately, investors in aggregate own it as long as it's outstanding.

[00:05:53] So even if one person owns it one day and another person owns it another day and a third person owns it the third day, that investors in aggregate are getting the return distribution that comes from owning it for longer periods of time.

[00:06:06] Unless being an ETF, they redeem out of it.

[00:06:09] So we put this research paper out there last week and we just got a ton of people writing to us and saying, what do you think about micro strategy?

[00:06:19] What do you think about these two times leverage micro strategy ETFs?

[00:06:24] And, you know, as we started to dig into it a little bit, what really fascinated us was reading the thought process of many of the investors in micro strategy, the stock and also in the two times leveraged ETF.

[00:06:42] And we're going to put this article out there, you know, maybe tomorrow or the next day where we pulled together a bunch of quotes that we got from X, from Substack and also from the Wall Street Journal, different interviews with people.

[00:06:54] And we think it's just a fun piece.

[00:06:56] You know, I know that we're going to get a lot of blowback.

[00:06:58] I think there'll be a lot of haters, whatever, you know, but our readership, I don't think are people that in general are playing in this.

[00:07:05] And so they're not following it.

[00:07:07] And I think they'll just find it amazing and interesting.

[00:07:10] And it's kind of eye opening what's going on.

[00:07:12] Yeah, I mean, I've seen some of those quotes and I just find that there's nothing more powerful than price.

[00:07:21] Price just guides how we think about the world, how we think about, you know, they say past performance is no predictor of future results.

[00:07:30] Well, when the past performance is so compelling, it absolutely serves as a predictor, at least in people's internal mapped future distributions.

[00:07:42] Right. It infects the way people think about risk when you have something that's done so well for so long in the case of Bitcoin.

[00:07:51] And obviously it's got this remarkably interesting story about it.

[00:07:55] But as I read through some of those quotes, you know, folks have fallen victim to the intoxication that comes from price that's just been so good for an extended period of time.

[00:08:07] It's a fascinating thing to look at.

[00:08:09] Yeah, absolutely.

[00:08:11] So let's just step back.

[00:08:13] We're going to talk a lot about MSTR, but let's just back up on the math, just the stylistic math in a levered product.

[00:08:22] And you make this really good point, which is I think between the levered long and short for MSTR, the total AUM is 4 billion.

[00:08:30] Obviously, it could be the case that people are doing what the prospectus tells them to do, which is kind of day trade this thing, but get out at the end of the day.

[00:08:39] Don't hold this thing.

[00:08:40] But there's always a new holder.

[00:08:42] So in aggregate, you've got the 4 billion.

[00:08:44] I think that's roughly the number, at least on the long side, between MSTU and MSTX.

[00:08:50] But let's just walk through maybe the hedge and then how these things are pro-cyclical or amplifying in price.

[00:08:59] You do lay that out in your piece, but let's just talk about what, let's just say, an MSTU needs to do in its portfolio to deliver twice the return of an MSTR,

[00:09:12] and then how that requirement changes at the end of the day based on what MSTR does.

[00:09:20] Sure.

[00:09:20] So in a two-times leveraged ETF, MSTX and MSTU are the two big two-times leveraged ETFs on MicroStrategy.

[00:09:29] For every dollar that's in the ETF, they need to own $2 of the underlying MicroStrategy stock.

[00:09:38] So they need to start the day owning, or they need to start the daily period owning two times the amount of stock as there is money that's in the ETF or AUM in the ETF.

[00:09:49] Now, they need to maintain that, though, day after day.

[00:09:53] So if the underlying stock price goes up or goes down, they won't be exactly two times leveraged anymore,

[00:10:00] and they will need to either sell some of the stock if it goes down or buy up.

[00:10:07] And so imagine, let's try to, what's the easiest numbers to think about?

[00:10:10] Let's say that the ETF has $100, and it owns $200 of MicroStrategy stock.

[00:10:17] And during the day, the stock goes up 10%.

[00:10:19] So the stock has gone up from $200 to $220, and that's great.

[00:10:25] The ETF has made like $20 of capital gain, of improvement.

[00:10:30] And so now the ETF asset went from $100 to $120.

[00:10:35] So they say, okay, the ETF assets is $120, the AUM.

[00:10:41] So we need to own $240 of MicroStrategy stock.

[00:10:46] But it only went up to $220.

[00:10:49] So they need to buy $20 more of MicroStrategy stock.

[00:10:55] They need to buy 20% more of the stock from the point of view of the ETF,

[00:11:00] where they need to buy 10% more of the stock when just viewed by how much stock the ETF owns.

[00:11:08] And conversely, the same thing happens.

[00:11:10] Let's say the stock goes down from $100 to $90.

[00:11:14] Well, now the ETF value has gone down from $100 to $80.

[00:11:20] And you want to be two times leveraged.

[00:11:23] So you want to own $160 of the stock, but you own $180.

[00:11:27] So you've got to sell $20 of the stock, which is 20% of the starting value of the ETF,

[00:11:34] or 10% of the value of the stock.

[00:11:36] So it's pretty charged.

[00:11:38] So you've got to imagine these two MicroStrategy, two times leveraged ETFs.

[00:11:43] Between them are about $5 billion of AUM.

[00:11:46] So they own about $10 billion of MicroStrategy stock, or they should,

[00:11:53] which happens to be like over 10% of the total number of common equity of MicroStrategy right now.

[00:11:59] Over 10% of MicroStrategy stock is owned by these ETFs.

[00:12:03] And if MicroStrategy stock goes up 10%, they've got to buy, right?

[00:12:09] So they're going to have to buy a billion dollars of MicroStrategy stock at the end of the day

[00:12:14] to keep the ETF balanced.

[00:12:16] Well, a billion dollars of MicroStrategy stock on the closing print is a lot.

[00:12:22] The stock doesn't bounce around 10% every day, but it bounces around a lot.

[00:12:27] And that's a really big impact, right?

[00:12:30] I mean, buying a billion dollars at the close or selling a billion dollars is probably even bigger

[00:12:34] impact in the other direction.

[00:12:37] Things can be less liquid and more volatile on the way down.

[00:12:40] Yeah, there's so many interesting aspects of that.

[00:12:43] One is you're overlaying some sort of long straddle on the underlying, right,

[00:12:48] in terms of buying demand and selling demand.

[00:12:52] Or perhaps it's better to say it's a short straddle, right?

[00:12:55] You need to buy as the market goes up and sell as the market goes down.

[00:12:59] So it's imposing itself.

[00:13:00] And you noted that it's also doing so at the end of the day,

[00:13:04] which there's a lot of trading activity, of course, that happens both at the open and the close.

[00:13:09] So that's not new, but at least potentially can be concentrated.

[00:13:14] And I think where this stuff really, really got interesting was kind of like the week before

[00:13:20] Thanksgiving.

[00:13:20] Bitcoin was rising.

[00:13:22] MSTR was rising on the back of that.

[00:13:24] The premium, as you talk about here, we'll get to, was expanding.

[00:13:28] And you had this huge expansion as well of implied vol.

[00:13:33] Super interesting.

[00:13:34] I mean, the move in even long dated implied vol on MSTR was just enormous.

[00:13:39] You know, two-year implied vol, I think, went up by 40 handles in about a week and a half.

[00:13:45] That's kind of unheard of stuff.

[00:13:47] Those are gigantic moves.

[00:13:48] I think the one-month vol went up by 100 or so.

[00:13:53] And again, as it's reasonably widely reported that their access to their leverage facility

[00:13:59] may have been compromised.

[00:14:01] And it does appear that these vehicles are now into the options market.

[00:14:06] They're reporting, especially MSTU, is reporting a rather gigantic book of options on MSTR.

[00:14:13] So it introduces all kinds of other risk factors as well, including Vega.

[00:14:19] Super interesting.

[00:14:21] Help us understand this from a context standpoint.

[00:14:24] And I know you've done some of this on the tools you built on the website to look at these.

[00:14:28] But if you go through the 100 pages of disclaimers for any one of these, they're all kind of plug and play.

[00:14:35] At some point, maybe midway through, they're going to show you a grid.

[00:14:39] And the grid is going to have return of the underlying, different scenarios,

[00:14:44] and the vol profile through which that return profile is realized.

[00:14:49] And they'll show you low vols and then they'll get to medium vols.

[00:14:53] And for MSTR, it caps out at 100 vol.

[00:14:56] And the profile is just really terrible to look at.

[00:15:01] That these things, even in a very bullish outcome for MSTR,

[00:15:05] the MSTU or MSTX, if it's 100 vol, is going to suffer badly.

[00:15:11] You were noting, and I've been looking at this as well, that at least for a period of time,

[00:15:16] MSTR was realizing more like 150.

[00:15:19] The options market is telling us 150, 160 for volatility right now.

[00:15:23] Incredible.

[00:15:24] So help us understand the sort of order of magnitude.

[00:15:29] Okay, so 50 vol in terms of that variance drag to 100 and then 100 to 150.

[00:15:36] They don't show the 150 table.

[00:15:38] Maybe they didn't contemplate that.

[00:15:40] And listen, you know, MSTR was realizing more like 70 a couple of months ago.

[00:15:44] I think I saw one of these tables.

[00:15:46] I think I saw this where MSTR, they were showing what does it look like at 15% vol,

[00:15:51] which is like, that's when it becomes a utility stock or something.

[00:15:56] Right, right.

[00:15:57] 15% move a day.

[00:15:59] Yeah, yeah.

[00:16:00] That's been doing.

[00:16:01] It's an interesting feature.

[00:16:03] I mean, you walk through the way in which these interact with the underlying

[00:16:06] and trying to provide some understanding of whether those numbers are big or not.

[00:16:13] The largest of these levered products is the 3X, the T-Triple-Q.

[00:16:18] And it's pretty big.

[00:16:19] It's 25 billion, I think, AUM.

[00:16:21] But it's also the Triple-Q.

[00:16:23] In the context of the vol profile of MSTR, the size of these two levered longs,

[00:16:31] and the liquidity profile of MSTR, how should we think about that interaction?

[00:16:38] Do you absolutely believe it's imposing itself on the underlying or is it too early to tell?

[00:16:43] How should we think about that?

[00:16:45] So first of all, you know, looking through the prospectus of these things,

[00:16:49] you know, you say it's kind of boilerplate.

[00:16:50] One thing that's pretty remarkable is you can't really figure out what are these swap contracts

[00:16:55] that they have with counterparties?

[00:16:57] Exactly how do they work?

[00:16:59] What are the costs in them?

[00:17:00] What are the incentives in them?

[00:17:02] Have they done a bunch of trades with an investment bank where they're getting the closing price and the swap adjusts at the closing price?

[00:17:09] And so the investment bank has an incentive to pound the stock down into the close or to buy the stock up into the close to make a profit at every close.

[00:17:20] They can make a profit, right, by buying half of what they need to buy.

[00:17:24] They might not make a profit on every single one, but they could have impact with half of what they need to buy and then buy the rest at the close or sell half of what they need to sell and sell the rest at the close.

[00:17:34] Is that what's going on?

[00:17:35] We don't know.

[00:17:36] I'm sure there's lots of folks out there that are focused on trying to pick up some of the crumbs around the closing auctions and what might be happening with this.

[00:17:46] It's gotten really big.

[00:17:47] I mean, we're at $5 billion now in these two ETFs.

[00:17:51] A month or so ago, we were probably at $1 billion or $1.5 billion.

[00:17:54] So they've tripled in size since then.

[00:17:57] So I think we are now at this point that things are starting to bite, it seems.

[00:18:02] As you said, we've hit this point where the banks don't want to give them the leverage and so they have to go into the options market.

[00:18:09] And we're starting to see a real breakdown in the day-to-day tracking between the up and the down.

[00:18:16] We're not getting a two-times return on a daily basis.

[00:18:19] And I don't know where we're going to go.

[00:18:22] I mean, if nothing changes, I mean, if the structures don't change, if the sponsors don't change things,

[00:18:27] and micro strategy goes up like 30%, let's say Bitcoin goes to $150,000, $150,000, let's say micro strategy stock doubles or more.

[00:18:37] And these things are now three times as big.

[00:18:40] It's going to be crazy.

[00:18:42] I mean, this is going to have a real, real impact, not only on micro strategy,

[00:18:46] but probably on the whole stock market and probably on Bitcoin as well.

[00:18:51] So I think that we're at a point where it's starting to get real.

[00:18:56] And yeah, I mean, I would also say it's really time to pay close attention because this could be a story that you could miss if you blink.

[00:19:04] Right.

[00:19:04] And we know about price vol spirals on the way down, right?

[00:19:08] We could look at the U.S. banking system in 2008 and the VIX goes to 80 and maybe XLF implied vol is probably double that.

[00:19:19] I mean, it just, that was a spiral lower, but you know that there's a stopping point, zero, right?

[00:19:24] That's how equities work.

[00:19:25] I think price vol spirals on the way up are actually more fascinating and candidly more dangerous because the unboundedness of these things,

[00:19:37] especially when you have something as alluring of a story as Bitcoin, right?

[00:19:42] Where there's such a skewness of the return profile to the upside.

[00:19:47] And the more it goes, the more that distribution needs to fatten out to unimaginable levels.

[00:19:55] You know, a little bit about Black Shoals, I think.

[00:19:57] So you throw 200 something vol into a option pricing model and use a two year expiration.

[00:20:05] The delta of an at the money option is 95.

[00:20:08] A 25 delta option with the stock at around 200 on MSTU, if you're throwing in 200 as the implied vol, you're in the 15,000s or so.

[00:20:20] You can't even get your arms around these numbers.

[00:20:23] But you make this really interesting point, which is if this thing really exploded to the upside, these ETFs would just get so enormous.

[00:20:31] It's really interesting to think about what would happen.

[00:20:35] Let's walk through some of your numbers because you surgically basically just applied the math to these dispassionately.

[00:20:42] And you've made assumptions about realized vol of micro strategy.

[00:20:47] I think you said 90.

[00:20:49] I can't remember if that's exactly correct.

[00:20:52] Right.

[00:20:52] The last two years of historical vol is 90%.

[00:20:56] The options market is a lot higher than that.

[00:20:58] So you could look at something in between or whatever.

[00:21:01] Let's look at it with 90 vol, for instance, right?

[00:21:04] Well, let's start with the one day risk.

[00:21:06] OK, because, again, some part of the pitch here is just on this thing for a day, you get a juiced up return.

[00:21:13] So we know that if micro strategy went down 50%, these things will go down 100%.

[00:21:19] Give us a sense from a implied distribution standpoint.

[00:21:24] What are the statistical odds of those kinds of events just on a one day basis, given that vol profile?

[00:21:31] Sure.

[00:21:32] Sure.

[00:21:32] You know, it's a tough one to answer because it's really about trying to quantify the fat tails of stock price returns, you know, these big outlier events.

[00:21:42] So what we did is we looked at a pretty big universe of about 1,500 stocks over the last 30 years or so.

[00:21:50] Not small stocks.

[00:21:51] We kind of sifted out really small stocks.

[00:21:53] Well, to begin with, right, let's say that we were looking for micro strategy stock.

[00:21:58] And we said, OK, well, at 90 vol, that means the daily vol is between 5% and 6%.

[00:22:03] So you need like a nine sigma move, so to speak, or a nine times the daily standard deviation move to be down 50% close to close.

[00:22:14] So how often does that happen?

[00:22:15] How often do stocks go down nine times their daily standard deviation?

[00:22:21] And what we found is looking at a pretty broad universe, that happens like, I don't know, 6% of the time.

[00:22:28] So 6% of the years include one episode like that.

[00:22:33] So the daily probability is really low, but on an annualized basis, it's 6% a year for that happening.

[00:22:39] But then you have to realize that it's not really close to close that would be the problem.

[00:22:44] And 50% at any time during the day or got close to it, that whoever your counterparties are going to make sure that the whole thing is shut down.

[00:22:54] So it's not just close to close.

[00:22:56] You know, if you're running an ETF and it's two times leveraged and you're down 50% and the ETF is wiped out and it's 11 o'clock in the morning,

[00:23:04] before that happens, you're going to be liquidated out of whatever trades you have with any counterparty that you have unless the counterparty hasn't structured things correctly.

[00:23:15] So that probability is like two times the 6%.

[00:23:18] We would estimate this intraday being like two times, that would be 12%.

[00:23:22] If the volatility of micro strategies is more like what the options market is saying of more like 160% annual ball,

[00:23:31] then the probability of touching down 50% in one day, just thinking about it like that,

[00:23:38] that kind of takes you to somewhere between say 15 and 50% probability that it happens over the course of a year.

[00:23:46] However, that's not the only way that this ETF can be worth virtually zero.

[00:23:51] Another way that the ETF can become worth virtually zero is just from the daily rebalancing that takes place over the course of the year.

[00:24:02] So for instance, well, with 90% volatility, without ever hitting down 50% on any one day,

[00:24:11] there's like, I don't know, maybe a 20% chance of being down more than 95% in the ETF,

[00:24:18] you know, which is virtually being wiped out.

[00:24:20] If the vol is higher, the probability of even being down 99% starts to become really, really significant.

[00:24:27] So the chances that this $5 billion of ETF AUM goes up in smoke over the next year,

[00:24:36] somewhere in the kind of three to one, it's not more likely than not to happen,

[00:24:42] but it is pretty significant probability of taking place.

[00:24:47] And of course, there's some micro strategy short ETFs, and those already have gone pretty much to zero.

[00:24:54] So those were relatively large at one point, but they've kind of been vaporized somewhat.

[00:24:59] But they still exist.

[00:25:01] You know, the tickers are still out there and they still exist.

[00:25:03] So a couple of things.

[00:25:04] One, I like the back of the envelope, sort of 2x the probability once you include the intraday monitoring.

[00:25:11] So that's a little rule of thumb, I think, from like the down and output business that used to quote,

[00:25:17] if you're going to monitor it, just end of day versus intraday.

[00:25:20] And on the intraday, it's a really important point because I'm going back to the implosion of the XIV in 2018.

[00:25:29] It was in some ways unclear what was happening.

[00:25:33] When you get towards zero, there's a lot of decisions to be made in a hurry.

[00:25:36] And there were different decisions made by the different sponsors of those two short inverse VIX trades.

[00:25:44] And I think that they led to slightly different outcomes.

[00:25:47] You could envision something where the ETF sponsor has got to make some very quick decisions on de-risking because they have leverage.

[00:25:57] And this thing could theoretically be worth less than zero, right?

[00:26:00] It's not like an equity.

[00:26:01] It's a leverage position.

[00:26:02] So I think that's interesting.

[00:26:04] I wanted to ask you this.

[00:26:05] So you've kind of almost outlined three different potential issues here.

[00:26:11] One is the one day, right?

[00:26:13] You're just long something in a leveraged fashion.

[00:26:15] It's volatile and bad things can happen.

[00:26:18] Okay, that's one.

[00:26:19] The second is, you know, if Bitcoin goes down a lot and micro strategy goes down a lot, this thing will lose money.

[00:26:27] That's kind of obvious.

[00:26:29] And then the third one is the vol.

[00:26:31] And it almost seems to me, you tell me if I'm on the right track here, it's almost as if the success can almost ensure demise at some point.

[00:26:41] And this is what happened with the XIV is it just got so big.

[00:26:46] And the way in which the leverage factor works, it's all of the success actually paves the way for a pretty dramatic unwind.

[00:26:54] And that's kind of more of a vol event than anything else.

[00:26:58] I guess my question is just, is the biggest risk here an increase in the realized volatility of MSTR?

[00:27:05] How should we think about like the different risks that the leveraged ETFs face?

[00:27:10] Well, I think that in terms of what is the most likely thing that's going to cause this ETF to be down 80% in a year, it's going to be high volatility.

[00:27:22] And high volatility without the price of micro strategies moving far away from where it is now.

[00:27:29] However, with these ETFs, they become like these lottery tickets where there's a very large probability that you're losing money.

[00:27:37] You know, there's a 70% chance you're going to lose money to a one-year horizon.

[00:27:40] But in the 30% of the cases where you're making money, you're making a ton of money.

[00:27:46] So at some point, so it looks very much like a lottery ticket.

[00:27:50] You know, you can make five times your money on this if micro strategy goes up by enough.

[00:27:55] But it needs to go up by a lot because it's kind of like you're paying a lot of option premium to have this big upside on the upside breakout.

[00:28:03] So it's not like, oh, the expected return on the ETF, for instance, could be positive.

[00:28:09] You know, could have an expected return of 9% or 10% could be the expected return across all the different outcomes that could happen.

[00:28:17] But there's a 70% chance that you're going to have outcomes where you've lost money, even though it has a 9% or 10% return.

[00:28:26] Of course, then there's the question of the frictions, the fees.

[00:28:30] I mean, the fees are high and the frictions are high.

[00:28:33] The leverage is high.

[00:28:34] This market impact is a real cost of the structure and is high.

[00:28:38] So those things all are significant in terms of impacting the expected return.

[00:28:44] But it just has such a weird kind of payoff.

[00:28:48] That's what it is.

[00:28:49] It's like, well, if you want this really out of the money payoff, maybe just buy some call options on MSTR and call it a day.

[00:28:56] You know, buy some out of the money calls.

[00:28:58] You know how much your downside is.

[00:28:59] It's going to put a much smaller amount of money into out of the money calls, for instance, than into this thing.

[00:29:05] And this thing also just has the problem that it's just could become very problematic as a structure, which buying some out of the money call option is a much simpler thing.

[00:29:15] Is there maybe you've just answered my question.

[00:29:18] But when I look at the tables that they present in the prospectuses and they disclaimer it away, right, long-term expected value could be close to zero.

[00:29:28] And, of course, the thing has five billion of AUM somehow.

[00:29:31] It's fascinating.

[00:29:33] But the tables, you just look at them and you almost can't believe how unappealing that profile is, you know, across different levels of vol and return.

[00:29:42] And I'm just wondering, and I think you used one of my favorite references, it's the George Costanza do the opposite.

[00:29:49] Is there a way to do the opposite?

[00:29:51] Invert this table to your benefit.

[00:29:53] Is there a trading strategy?

[00:29:55] And perhaps, again, this is maybe more the long vol strategy, of course, for which you have to pay a premium.

[00:30:01] But what is it about this trading strategy that's producing such unappealing results, at least over a long enough time frame with a high enough vol?

[00:30:09] It's kind of limited liability, I would say, is what is happening here.

[00:30:13] That you want to have limited liability.

[00:30:15] You don't want to get, like, totally wiped out.

[00:30:17] So you take $100,000 or $10,000 and you put it into this thing.

[00:30:23] And now you're two times leverage long micro strategies.

[00:30:26] And the most you can lose is the $100,000 that you put into it.

[00:30:29] Now, let's look at a two times short micro strategy ETF, right?

[00:30:34] So you look at a two times short micro strategy ETF, that has a really lousy looking table, a lot of negative red numbers.

[00:30:43] Then you say, well, can I turn that around?

[00:30:45] If I short that, then I'm going to be long two times micro strategy if I short it.

[00:30:50] Okay.

[00:30:50] But the thing is that if you short it, you must rebalance the ETF size each day yourself so that you also have limited liability, so to speak.

[00:31:01] So what I mean is that you should open up a brokerage account.

[00:31:04] You put $100,000 in there.

[00:31:07] You short $100,000 of the ETF.

[00:31:09] But now you've got to keep on rebalancing that short position so that you can never lose more than the $100,000 that you put in there.

[00:31:22] So now you're in this situation where you're sort of doing the trades in the ETF that are like making it into the equivalent of just being long the ETF itself.

[00:31:33] And the only difference is that if you go short it, you get to earn the fees that the ETF is charging.

[00:31:39] You get to sort of benefit from flipping the leverage.

[00:31:42] But there's going to be a borrow cost that probably takes that all away.

[00:31:47] So I know people that have shorted these.

[00:31:49] But if you short it, but as I say, you sort of have this accountant.

[00:31:53] You never allow your position size to get bigger than the equity in your account.

[00:31:58] Well, then you've just turned it into the long side.

[00:32:00] It's exactly the same as just being long as well.

[00:32:03] Does that make sense?

[00:32:05] This idea of put $100,000 into a brokerage account, short $100,000 of it, and keep your position always equal to the equity in that account.

[00:32:14] So if you lose $10,000 and your equity is worth $90,000 in the account, then make sure you're only short $90,000 of the ETF.

[00:32:24] That gives you exactly the same profile.

[00:32:27] It gives you exactly the same position as being long a two-times leveraged ETF.

[00:32:33] And so what you're doing is just replicating for lower cost?

[00:32:37] Possibly, yeah, depending on the borrow fee.

[00:32:39] Yep.

[00:32:40] Right, right.

[00:32:40] You mentioned this just about the MSTU.

[00:32:44] And of course, there's options on MSTU.

[00:32:47] And one of the things you did in your paper is you pointed to the recent breakdown in some of the tracking errors, which certainly people have their eyes on.

[00:32:56] You know, it's just been interesting to me to see the folks that are long MSTU.

[00:33:04] And I don't profess to be any expert on Bitcoin or MSTU, but it does, to me, seem like people are really bought in to this idea that this thing can only go up.

[00:33:15] And I started looking at options on MSTU.

[00:33:19] I mentioned that MSTU seems to have purchased a truckload of options on MSTR.

[00:33:27] And I took everything that they reported.

[00:33:30] They're actually reporting these, and perhaps they have to as part of a filing.

[00:33:34] But I just took all the positions and put them in option pricing spreadsheet.

[00:33:40] And I mean, I'm looking at four different line items individually that have $400,000 of Vega, just for individual options.

[00:33:49] The book has $2 million of Vega.

[00:33:53] And that's in something that the vol has moved 100 points in the last three weeks.

[00:33:59] It moved up 100, and it's sort of given back the 30 or 40 of those vols.

[00:34:05] It's pretty interesting.

[00:34:06] You sort of entertain this towards the back end of your piece, which is, would you short MSTU?

[00:34:12] Would you short MSTR?

[00:34:14] I'd love to get your thoughts on that, maybe more from a risk management standpoint than what you think of Michael Saylor or the price of Bitcoin.

[00:34:22] How should someone think about taking a position that is so volatile, both whether it's by selling upside call options or just kind of shorting the stock itself?

[00:34:32] So the tool that we have on our website kind of allows you to say, well, what if somebody came out and created an ETF that lets you be long one unit of Bitcoin and short $1 worth of MSTR itself?

[00:34:48] Or maybe you want to go the other way around.

[00:34:50] It doesn't matter all that much which way you go.

[00:34:53] But all of that rebalancing that has to happen, the volatility of the micro strategy premium to Bitcoin is so volatile that the trade is very volatile.

[00:35:04] And you just need a huge realization in terms of Bitcoin outperforming micro strategy or vice versa in order to make money on the trade.

[00:35:13] So if you were somebody that was looking at the situation and you weren't really a believer in the Bitcoin yield idea of Michael Saylor and some of the other ideas that are out there and you say, well, I think that MSTR is going to eventually after the issue of $40 billion of stock and convertible bonds, that maybe the premium will be smaller.

[00:35:34] I don't know.

[00:35:34] And so maybe you want to do that trade.

[00:35:37] Well, if you do that trade and let's say that Bitcoin is up 15%, but micro strategy is flat.

[00:35:44] So the premium has come in quite a bit.

[00:35:46] You would be saying, wow, that was great.

[00:35:48] I called that one.

[00:35:49] Right.

[00:35:49] But actually, you're down 20% on the ETF, probably more than that.

[00:35:53] But you'd be down 20% on the ETF.

[00:35:55] Or you could say, OK, well, what about if Bitcoin is up 25% and micro strategy is down 10%?

[00:36:03] Come on.

[00:36:04] I have to have made a lot of money on that trade, right?

[00:36:07] I'm short micro strategy.

[00:36:09] I'm long Bitcoin.

[00:36:10] Bitcoin's up 25%.

[00:36:11] Micro strategy is down 10%.

[00:36:13] Come on.

[00:36:15] Well, you know what?

[00:36:15] You just broke even.

[00:36:16] You're down 1% in our calculation.

[00:36:19] But can you imagine that, like being so right and yet not getting anything out of it?

[00:36:24] But on the other hand, if Bitcoin is up 25% and micro strategy is down 50%, now you're starting to make some real money.

[00:36:32] But that's a pretty big outcome on that trade.

[00:36:34] It certainly is not the central case that one would believe would happen.

[00:36:37] Who knows what the central case is?

[00:36:39] But it's not Bitcoin up 25% and micro strategy down 50%, I would say.

[00:36:45] So it doesn't have a very nice return pattern.

[00:36:47] You know, it's just so volatile that the return pattern is like not that great.

[00:36:52] So if you wanted to put on that trade in a limited liability manner, structured as an ETF, it would be okay.

[00:36:58] You know, if after one week, Bitcoin was up 25% and micro strategy was down 10%, you'd make a lot of money if it was just a week.

[00:37:07] But giving it a little bit more time, you know, is problematic.

[00:37:10] There's something about the daily reset I find a little troublesome.

[00:37:15] I mean, I put zero DTEs in this category to some extent that when the pricing is determined each and every day individually, you know, put the variant swap business in that category.

[00:37:27] You've got something that each and every day is a trade in and of itself.

[00:37:32] There's just a lot of things there.

[00:37:33] There's a lot of things that need to happen.

[00:37:36] And I don't know if you remember this.

[00:37:37] This goes back a long time.

[00:37:39] But there used to be a trade in the market.

[00:37:41] It was the daily variant swap versus the weekly variant swap.

[00:37:45] And it was some version of mean reversion.

[00:37:47] But I think that this is what is just so hard to wrap your head around with regard to these daily products.

[00:37:54] You know, it's like, yeah, we think about our P&L on a mark-to-market basis each day.

[00:37:58] But the way in which these things resize and reset, I just think it leads to some results that are hard to get your arms around.

[00:38:07] Yeah, very much so.

[00:38:08] And especially, you know, when you start getting into a long, short one, it's like we were scratching our heads.

[00:38:13] We sort of had some rules of thumb for thinking about two times long leverage, one time short leverage, whatever.

[00:38:20] That's why we decided to write that piece last week and create the tool was because of this whole two times long versus one time short battle shares.

[00:38:28] There's ones that who knows if they'll ever come out or not.

[00:38:31] But if they do, at least we'll have a tool for people to be able to think about what the distributions look like.

[00:38:36] Right.

[00:38:37] And so with that product, and I know one of them was, I want to say it was COIN versus Wells Fargo, or you said Tesla versus Ford.

[00:38:44] Maybe that's a good one.

[00:38:45] And so if you think about it from the hedger's standpoint, you would invoke some notion of correlation.

[00:38:51] Just big picture, how would the hedger need to think about that?

[00:38:55] Yeah.

[00:38:55] So again, the hedger would need to rebalance both sides of the trade every day at the close.

[00:39:01] So you would want to see how much money have I made or lost in the ETF.

[00:39:06] That gives me my new AUM, the new NAV for the ETF.

[00:39:11] And then I need to be two times long the Tesla, one time short the Ford.

[00:39:15] So I'm going to need to do some trades.

[00:39:17] It's, you know, I might be buying both.

[00:39:19] I might be buying one, selling the other.

[00:39:20] You know, it could be any combination of things, you know, depending on how they moved.

[00:39:25] And, you know, again, this kind of idea of the limited liability means that there's a lot of volatility drag in there in terms of the central outcomes.

[00:39:33] You know, that central outcomes will look bad and big, big tail outcomes will look good from that.

[00:39:39] So it's got this kind of lottery ticket-ish aspect to it away from, unfortunately, the fact that these are pretty costly, right?

[00:39:46] Like to say I want to be long two times, like to say I want to be long two times the S&P 500, let's say, in one of these structures.

[00:39:55] Well, if you're paying 100 basis point fee, which you will be, right away, whatever the financing rate is for that long extra one unit of S&P 500, you're paying 200 basis points on that.

[00:40:08] Because you can buy the S&P 500 for basically a zero fee or three basis point fee.

[00:40:13] So you're paying 200 basis points on the leverage long part of it.

[00:40:18] Before we even get into the question of what is the ETF agreed with counterparties in terms of the financing rate for the leveraged long position?

[00:40:28] You know, maybe that's already something like T-bills plus 1%.

[00:40:31] So now you're leveraging the S&P 500 at treasury bills, say, plus 3%.

[00:40:38] How bullish do you have to be to want that marginal exposure of owning the S&P 500 an extra full amount of your wealth, let's say, with that leverage?

[00:40:50] You know, with that cost of leverage of, say, 3%.

[00:40:52] That's a lot.

[00:40:54] I wish we could tell what it is.

[00:40:56] You know, you can't.

[00:40:56] I mean, all we know is what's the fee.

[00:40:58] We know what the fee is, but we don't really know what's getting charged is embedded in the trades that these ETFs are doing with the street.

[00:41:06] But we know that the street will price them to their advantage, obviously.

[00:41:10] You know, they're not going to give away the leverage for nothing.

[00:41:13] Yeah, my sense, just having a little bit of knowledge on the counterparties.

[00:41:17] These are not Goldman Sachs or JP Morgan counterparties.

[00:41:21] There may be some of those, but at least as listed by MSTU, these are kind of off-the-run counterparties.

[00:41:29] And so my sense is that that swap business gets done at a reasonably healthy fee because I don't know that the ETF has a lot of places to turn.

[00:41:40] Just kind of speculating on that, but that is my somewhat informed sense.

[00:41:44] I want to circle back just on the battleshares again because maybe I didn't ask the question the right way, and I think you answered it.

[00:41:51] There's not a correlation in terms of if we were to price an outperformance option or a dispersion trade, that sort of thing.

[00:41:58] We're not pricing a forward-looking correlation, right?

[00:42:02] That's not from a hedgerist standpoint.

[00:42:04] They just need to act at the end of the day.

[00:42:07] The movements in the stock and the change at AUM are going to tell them what to do, but they're not subject to a mistaken correlation assumption for better or for worse.

[00:42:16] Is that correct?

[00:42:17] Yes, I agree with that.

[00:42:18] Okay.

[00:42:19] Let's just finish off.

[00:42:20] I'd love to just solicit some of your views on Bitcoin yield, and it's not to be a hater in any way.

[00:42:26] It's just to try to hear what you think about it.

[00:42:29] I've been listening to Michael Saylor.

[00:42:31] I know a little bit about Bitcoin.

[00:42:33] I'm not all in.

[00:42:34] I'm not all out either.

[00:42:35] For me, it's just a price.

[00:42:36] I don't need any cold storage or anything like that, but he speaks about it in a unique way and certainly has got a lot of people thinking that this is a thing.

[00:42:46] I'd love to get your take on it.

[00:42:48] Sure.

[00:42:48] So, you know, the idea of Bitcoin yield for people that haven't heard of it before within the context of MicroStrategy stock is that since basically the only thing that MicroStrategy owns is Bitcoin, more or less,

[00:43:01] you can see how many units of Bitcoin, each share of MicroStrategy effectively gives you ownership of implicit ownership.

[00:43:10] So, and you can look at that number.

[00:43:13] That number can change over time as MicroStrategy sells equity and convertible bonds and debt and buys Bitcoin.

[00:43:24] So, and you can see how many of them are going to be able to do that.

[00:43:26] So, and you can see how many of them are going to be able to do that.

[00:43:26] So, you know, effectively could be getting more Bitcoin per share of equity.

[00:43:30] So, for one thing, if MicroStrategy just issued debt, let's just say they just issued bonds and bought Bitcoin and became more leveraged.

[00:43:40] Well, then the number of Bitcoins represented by each share would be going up by the degree to which they were issuing debt to buy more Bitcoin.

[00:43:50] Now, they issue equity and the amount of Bitcoin will go up if they're able to issue the equity at increasing premium to the underlying value of the Bitcoin.

[00:44:03] So, to the extent that the premium of MicroStrategy shares increases over time relative to the value of Bitcoin that it owns,

[00:44:14] then the amount of Bitcoin that each share owns goes up.

[00:44:19] When it issues convertible bonds, if you make the assumption that the convertible bonds will be exercised,

[00:44:25] generally at a premium of, say, 50% to today's market price of MicroStrategy stock,

[00:44:31] that also will give you a positive Bitcoin yield, as they call it.

[00:44:35] But that's what's going on.

[00:44:37] And all of those things go in the opposite direction, can go in the opposite direction.

[00:44:43] So, if MicroStrategy has to repay debt, you know, it has a debt maturity,

[00:44:47] or it has a convertible bond that the owners don't convert into stock,

[00:44:53] that then MicroStrategy will have to either issue more debt, okay,

[00:44:57] but if they have to sell some of the Bitcoin to pay back the debt,

[00:45:01] then the Bitcoin yield by that measure would be negative.

[00:45:05] If MicroStrategy issues shares and convertibles at a much smaller premium to its underlying Bitcoin

[00:45:12] over time than where it is today, we'll start to see the Bitcoin yield go negative as well.

[00:45:19] So, it operates in both directions.

[00:45:21] Now, presumably, if MicroStrategy shares start to trade, say, in line with its holdings of Bitcoin,

[00:45:29] then they won't buy any more.

[00:45:31] Maybe they won't issue any more shares and buy any more Bitcoin,

[00:45:34] and things will kind of settle down,

[00:45:36] and there won't be a change anymore in sort of Bitcoins per share.

[00:45:40] But that's the concept of Bitcoin yield.

[00:45:42] You get a positive Bitcoin yield if the premium is expanding over time of the share price.

[00:45:49] And you could sort of see that circularity where it's like,

[00:45:53] I'm buying it because I want Bitcoin yield.

[00:45:55] It pushes the share price up.

[00:45:57] It pushes it up relative to Bitcoin.

[00:45:59] And it kind of goes on for a while as a flywheel until it doesn't.

[00:46:02] It all argues for some justification for the premium because I could go out and buy IBIT.

[00:46:11] That's pretty easy.

[00:46:12] The ETF is super accessible now.

[00:46:14] It's liquid.

[00:46:15] It's extremely low cost.

[00:46:17] It doesn't trade at a premium to Bitcoin.

[00:46:19] And so you have to sort of ask yourself,

[00:46:22] and I'm not smart enough on Bitcoin at all to understand this,

[00:46:26] that does the accumulation, I think it's 400,000 Bitcoin at this point,

[00:46:30] is that itself worth something?

[00:46:33] Now, you can argue, well, you own too much of something.

[00:46:36] It's crowded.

[00:46:37] Exits get crowded.

[00:46:38] It's hard to get out.

[00:46:39] That's a risk.

[00:46:40] Or, and again, this is the experts on the space,

[00:46:43] that just the ownership of having a stake in this thing

[00:46:47] creates a lot of future optionality.

[00:46:49] I don't know.

[00:46:50] You're a part of something that's got this big stake in this digital frontier.

[00:46:55] It's hard to know.

[00:46:56] Have you run any regressions on the behavior of MSTR relative to the premium?

[00:47:03] Like, it does seem like it's expanding on the way up.

[00:47:05] You're making the argument it would likely decrease on the way down that premium.

[00:47:10] Have you actually put any numbers to that?

[00:47:13] No, we haven't looked at that.

[00:47:15] We're tourists.

[00:47:15] I would say that my colleagues at Elm and I, we're just tourists in this area.

[00:47:20] You know, all that we do is we invest in broad market cap index funds.

[00:47:25] We know very little about any of this stuff.

[00:47:28] But we're just touristing around for fun.

[00:47:30] And sometimes indexing can be kind of calm, maybe too calm.

[00:47:35] And, you know, investing in index funds.

[00:47:37] So we like to look at other things for fun.

[00:47:39] But we're not doing anything in the space.

[00:47:42] We're not even close to doing anything in the space.

[00:47:44] But it is absolutely fascinating.

[00:47:47] And we like to try to help people to think clearly about things.

[00:47:52] And when we read some of what people are saying, we're kind of thinking that more people throwing the counter to what's going on out there can be valuable right now.

[00:48:03] But yeah, anyway, so no, we haven't run those regressions to see how that works.

[00:48:09] I mean, of course, we do have in our minds similar situations to this that we've seen in the past.

[00:48:15] They tend to follow a pretty similar pattern.

[00:48:18] And, you know, I wouldn't be surprised at all if MSTR follows a similar pattern to, say, the Grayscale Bitcoin Trust, which spent a lot of time at a really big premium to its underlying Bitcoin holdings and then spent a lot of time at a pretty big discount to its Bitcoin holdings before eventually trying to swap out.

[00:48:39] I mean, one thing about this, right, Dean, that we know is like this is a corporation.

[00:48:45] Corporations pay tax.

[00:48:46] There's a tax liability on this Bitcoin.

[00:48:48] You know, maybe there's a way of not paying the tax.

[00:48:51] Maybe get exempted from the tax somehow.

[00:48:53] Maybe there's a new rule that's like, OK, Bitcoin doesn't get taxed, you know, because it's our currency.

[00:48:59] I don't know.

[00:48:59] All of those things are possible.

[00:49:01] But under today's rules, we know that if they sell those Bitcoins at a profit, they're going to have to pay corporate capital gains tax.

[00:49:08] Also, it's possible under the change of rules, the corporate minimum tax.

[00:49:15] It's also possible that they might even have to pay 15 percent tax on unrealized gains in Bitcoin.

[00:49:21] The corporate structure, we have ETFs and mutual funds so that we don't have double taxations when owning assets on behalf of investors.

[00:49:30] Owning this in a corporate form is kind of strange.

[00:49:34] Now, again, you know, maybe there's some endgame, you know, some tax restructuring endgame that we don't know about.

[00:49:39] I don't know what the rules are.

[00:49:41] But at least superficially, there's a tax liability in there, too, which is not nice.

[00:49:47] Right.

[00:49:48] As we close out, are there any other financial products or things that are being developed right now that have piqued your interest?

[00:49:57] This seems to have.

[00:49:58] Is there anything else that you're looking at kind of around the world that has got you intellectually curious?

[00:50:03] Oh, good question.

[00:50:04] You know, we're very interested in the single stock option world and what's been going on there.

[00:50:10] We find it fascinating.

[00:50:11] We scratch our heads about why all of this is going on, why there's so much action there.

[00:50:17] And, you know, in general, we are very interested in how, as we've entered like a zero fee, zero commission world, how all kinds of pretty interesting and dramatic speculative activities have blossomed.

[00:50:34] And we wonder where is that all going to end?

[00:50:37] I mean, options trading volume is what, tripled, quadrupled in the last four years.

[00:50:42] Single stock options in the U.S. are trading as much as they're trading notional amounts of individual stocks, not to mention derivatives on indices.

[00:50:51] We hear the stories about in India, the options market is just absolutely going gangbusters.

[00:50:57] And I've read reports that like 80 percent of people that trade options over there lose money.

[00:51:03] So I don't know where this is all going to end.

[00:51:05] But I think there is nothing more dramatic than creating a vehicle to give you two times leverage on like the most volatile thing that exists.

[00:51:18] So, yeah, it's just kind of bizarre how we're getting this.

[00:51:22] You know, and as you say, like if you opened an account at JP Morgan, right, and you said here, what I want to do is I want to buy micro strategy stock and I want 50 percent margin on that.

[00:51:32] Right. Like they would probably say, no, we're not going to do that on a single stock.

[00:51:37] But you could open an account and put all of your money into this two times leverage ETF.

[00:51:42] And that would be OK. And it's kind of it's a little bit odd.

[00:51:46] The whole thing. Not a little bit.

[00:51:48] It's difficult to be consistent, I think, on some of the regulation of these things.

[00:51:54] I would totally, totally agree.

[00:51:56] You know, one thing that is just another very interesting development is the rise of the I guess I just call them the betting markets.

[00:52:03] The I think Kelsey is one.

[00:52:06] Kalshi.

[00:52:07] Kalshi.

[00:52:07] And then.

[00:52:08] Polymarket.

[00:52:09] Polymarket.

[00:52:09] Yeah.

[00:52:10] Yeah.

[00:52:10] And it's like you can get price discovery on just about anything these days.

[00:52:14] I just wonder where all that is going.

[00:52:17] These kind of digital bets.

[00:52:19] And it was really interesting to watch just around things like the presidential election, where these betting markets, you're betting on the election, but you can sort of make a joint bet on whether the Republicans win.

[00:52:33] And they also sweep Congress.

[00:52:35] Right.

[00:52:35] So you sort of have a correlation embedded in there.

[00:52:38] It's kind of a parlay.

[00:52:40] There's really a lot of complex math.

[00:52:43] I'll just throw one more thing at you.

[00:52:44] I thought this was hysterical.

[00:52:45] So on Poly and Kalshi, they have a bet that Bitcoin gets to 100,000.

[00:52:52] And I think it was at 92,000, maybe a month ago or so.

[00:52:56] And the probability as per the betting market was like 75%.

[00:53:01] So I cooked up a one touch option model.

[00:53:05] You're at 92.

[00:53:06] You've got to touch 100.

[00:53:07] Here's the vol.

[00:53:08] Basically a black shoals.

[00:53:10] Nothing more than that.

[00:53:11] And wouldn't you know it?

[00:53:13] The probability was basically the exact same.

[00:53:17] So it's the wisdom of crowds, I suppose.

[00:53:20] Right?

[00:53:20] Yeah.

[00:53:21] Yeah, definitely.

[00:53:22] Yeah.

[00:53:22] It's all remarkable.

[00:53:23] I think the one thing I wish we would have is just more disclosure.

[00:53:26] You know, as a starting point on all this stuff, really trying to help people to understand these ETFs somehow.

[00:53:32] I don't know where the disclosure needs to be.

[00:53:34] I don't think the prospectus is read by anybody who buys one of these, right?

[00:53:39] Like you go, it's like, I want to go buy MSTU.

[00:53:42] You type it into your trade at your brokerage account and you buy it.

[00:53:46] But somewhere it should say, like, really tell you what's going on there.

[00:53:49] And, you know, I think that goes for sports betting and Vegas and all these things.

[00:53:54] I think there should be more disclosure in terms of what the odds are, what the outcomes are, what the cost of taking the risk is.

[00:54:02] I really agree.

[00:54:03] And I totally believe in financial innovation.

[00:54:07] I really do.

[00:54:08] And I think you could really wind up down the wrong road of overregulating.

[00:54:13] And you also make the point that it's not like one or two guys has a big slug of this.

[00:54:18] Maybe they do.

[00:54:19] But it could be the case that that $5 billion just gets kind of passed along.

[00:54:23] And so in aggregate, there's going to be some wealth destruction.

[00:54:27] But it's not like one individual is very obviously holding the bag if people are kind of in and out of these things.

[00:54:34] Obviously, there is the decay and there's some fees and so forth.

[00:54:37] And probably a misunderstanding of the risk.

[00:54:40] I mean, certainly the quotes that you provide really indicate just a true misunderstanding of the risks of these things.

[00:54:46] So it is unfortunate.

[00:54:48] So we can find your research on elmwealth.com.

[00:54:52] And you've got some really good pieces there.

[00:54:54] I would encourage folks to look at your most recent one that's posted, leverage it or leave it, making sense of turbocharged ETFs.

[00:55:02] And then the MSTR one specifically, is that going to be published soon on the site?

[00:55:07] I think it's going to be out tomorrow, December 5th.

[00:55:10] The latest December 6th.

[00:55:12] Okay, perfect.

[00:55:13] Excellent.

[00:55:13] Well, Victor, it's been great to reconnect.

[00:55:15] Always love our conversations.

[00:55:17] Thanks for being a guest.

[00:55:18] Same here.

[00:55:19] It's been really fun, dude.

[00:55:20] I've enjoyed it very much.

[00:55:21] Great topics.

[00:55:22] Thanks.

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