MicroStrategy's Convertible Bonds Attract Market Neutral Arbitrage Strategies

According to Odaily, Eli Pars, Co-Chief Investment Officer at Calamos Advisors LLC, is among the investors in MicroStrategy's over $6 billion convertible notes issued this year to expand its Bitcoin reserves. Pars, like many other managers, utilizes these notes for market-neutral arbitrage bets, capitalizing on the underlying asset's volatility. "Convertible bonds are a way for issuers to monetize stock volatility, and MicroStrategy is an extreme example," Pars stated. His firm holds over $130 million in MicroStrategy notes, employing both long and arbitrage strategies. Since October 31, MicroStrategy has acquired approximately $13.5 billion in Bitcoin and issued $3 billion in zero-interest convertible notes, marking the company's fifth bond issuance this year. These low-interest, long-term notes have an outstanding amount exceeding $7 billion and can be converted into stock if the share price surpasses a certain level. Hedge funds purchase these notes to deploy their own convertible arbitrage strategies, with firms like AQR Capital Management and Man Group already implementing such strategies elsewhere. This approach has become one of Wall Street's most popular strategies this year. Pars noted the appeal of this transaction, highlighting that the implied volatility of convertible bonds is significantly lower than actual volatility or options implied volatility. Even within the convertible bond sector, MicroStrategy presents a "very rare opportunity," especially considering the scale and number of issuances. MicroStrategy's founder, Michael Saylor, mentioned in an interview with CNBC, "Our job is to connect traditional capital markets, which need bonds, fixed income, stocks, or options, with the crypto economy, using Bitcoin to achieve this."