💥 My STRC Trade Exploded!

FIRE BTC Issue #83 - Or did it?

Back in March, I wrote about buying STRC with borrowed money.

And up until last week, this trade was crushing it. Strategy's "digital credit" had been very quiet, while it just kept churning out cash flow each month. Cash flow that I've been promptly turning into cold, hard BTC.

Then all hell broke loose, and STRC traded as low as $82.53 on Friday.

That is a pretty ugly mark when the instrument is designed to trade around $100. It closed last week just under $89, bounced back above $90 on Monday, and then rolled over again. As I am updating this on Wednesday, it is trading around $84.54.

The Strategy doomers started running victory laps, and its proponents were on their heels a bit, rationalizing and searching for a plausible explanation.

I get why both sides reacted that way. A move into the low $80s looks like something broke. And if you own it or believe in the Strategy capital markets machine, the instinct is to explain why it didn't.

My read is more boring, and more useful: Friday looked like a leverage flush, but the failed bounce since then means the market is still repricing the risk. A lot of people are learning the difference between owning a volatile income instrument and financing that instrument in a way that can force you to sell.

Matt Cole put it another way: this looked like a liquidation event, not a credit event.

My trade has survived so far because the debt structure gives it time.

When I originally wrote about this, I was clear that this was a small position in my portfolio and just a very small experiment. That is still true. I also used borrowed money, but I didn't use margin debt. I used a HELOC, which means the loan isn't tied to the daily price of STRC.

That difference mattered last week.

So where do things stand, and what do I plan to do next? Let's find out...

🧾 Where The Trade Stands

In the original article, I broke down the details of my trade using a $50,000 example with my actual economics:

• $50,000 borrowed against a HELOC

• 5% promotional interest rate at the start

• STRC bought at $97.69

• 511 shares

• Return-of-capital dividends reducing cost basis over time

• $1,151 of HELOC interest through that initial period

I also need to correct one thing from that original article.

I wrote that the purchase price was $94.13, but that was actually the adjusted cost basis my broker was showing me at the time. Because STRC dividends are paid as return of capital, they reduce cost basis instead of showing up as taxable income right away. My original purchase price was $97.69.

That changes the return calculation, and two other things changed too.

First, the promotional HELOC rate ended. In the original article, I explained that my HELOC would adjust to Prime + 23 basis points. With Prime at 6.75%, that puts the borrowing rate at 6.98%.

Second, STRC got hit hard.

At $84.54, the 511-share example is worth about $43,200. The original purchase amount was about $49,920, and the position has received about $3,758 of return-of-capital distributions from October through May.

But the position has also kept paying.

At the current 11.5% dividend rate, STRC pays $11.50 per year on its $100 par value. That works out to about $0.958 per share per month, or about $490 per month on 511 shares.

So the updated $50,000 example starts with the original purchase amount, adds the actual return-of-capital distributions paid from October through May, and then subtracts the HELOC interest cost: