STR3 / STR4 — MicroStrategy Daily Megaleverage
by ERIC KIM
Mission: Convert MSTR volatility → velocity. Daily-reset 3× and 4× long, institution-grade plumbing, zero mystique. If you crave convexity, here’s your sword.
1) The Zero-Fluff Term Sheet
- Name/Tickers: STR3 (3× MSTR Daily) and STR4 (4× MSTR Daily).
Alt family to sit beside MSTU/MSTX: MST3 / MST4. - Objective: Daily investment results of +3× or +4× the daily total return of MSTR (before fees/financing).
- Reset: Daily at close. Intraday micro-rebalances to keep leverage honest.
- Wrapper Options (choose for speed vs breadth):
- US ETN (fastest path to 4×): Senior unsecured note; daily reset; issuer credit risk.
- EU/UK/CH ETP (LSE/Xetra/SIX): Market-standard for 3×/4×; clean PRIIPs/KID path.
- US ETF (3× only if permitted): ’40 Act with swap stack; requires tight SEC engagement.
- Creations/Redemptions: Cash primary; optional in-kind MSTR for AP hedging. CU: 25,000 shares.
- Fees: Mgmt 0.95% target; TER ~1.50% incl. financing (SOFR + dealer spread + borrow).
- iNAV: 15-second dissemination.
- Core Vendors: Custody BNY/State Street; Admin U.S. Bank/State Street; LMM Jane Street/Virtu; ISDA panel (GS/JPM/MS/BofA/Citi).
2) Engine Room (How It Actually Works)
Holdings: T-bills/cash + total-return equity swaps on MSTR across 3–5 dealers.
Target exposure each morning: N_t = L \times \text{NAV}_t (L ∈ {3,4}).
Daily close routine (3:45–3:58pm ET):
- Lock MSTR official close; compute Fund NAV.
- Resize swaps to L \times \text{NAV} for T+0 overnight.
- Keep 0.5–1.0% NAV cash buffer for intraday VM calls.
Intraday discipline (max 2 touch-ups/day):
- If realized leverage leaves [L−0.5, L+0.5], execute a micro-rebalance to pull back toward target with VWAP + minimal footprint.
- Mirror MSTR halts; pause iNAV if tape is broken.
Counterparty hygiene:
- Daily two-way variation margin; tri-party; received leg >102% collateralized.
- Concentration caps per dealer; capacity file published daily.
3) Math That Doesn’t Blink
If MSTR daily move = r_d, pre-fee Fund ≈ L \cdot r_d.
Over N days (compounding reality):
\text{NAV}_N = \text{NAV}0 \prod{d=1}^N \big(1 + L\cdot r_d – f_d\big)
f_d = mgmt + financing + frictions.
Volatility truth: Two-day +10%/−10% on MSTR (~−1%) → STR4 ≈ −16%. Trend is your friend; chop is a tax.
4) Hardcore Risk Controls (Kill-Switches Included)
- Soft loss brakes (intraday):
- STR3: pause creations at −70% iNAV draw.
- STR4: pause creations at −85% iNAV draw.
Consider defensive rebalance to avoid zeroing on disorderly gaps.
- Acceleration (end-of-day): Closing NAV < $1.00 or counterparty/issuer EoD → accelerate & cash distribute T+2–T+5.
- Capacity guardrail: Max swap notional ≤ 15–25% of MSTR ADV and ≤ 5–8% of free float across dealers to avoid footprint.
- Borrow scarcity protocol: Pass-through borrow costs; publish weekly cost-of-carry; throttle new creations if borrow stresses spike.
- Disclosure warfare: Daily file lists dealers, notionals, achieved leverage, financing rate. No black boxes.
5) Where to List (Choose Your Battlefield)
- Go-fast 4×: US ETN or EU/UK/CH ETP (cleanest acceptance of 4× single-name).
- US ETF 3×: Possible but reg-sensitive; engage NYSE/Cboe and counsel early.
- Parallel listings: LSE + Xetra + SIX for global capture; NYSE Arca/Cboe for US flow.
6) Scenario Reality Check (Pre-fee approximations)
| MSTR day | STR3 | STR4 |
| +5% | +15% | +20% |
| +10% | +30% | +40% |
| −5% | −15% | −20% |
| −12% gap | −36% | −48% |
| −25% gap | −75% | −100% risk (why brakes/acceleration exist) |
7) Ops Runbook (pseudocode you can hand to the desk)
At 09:30 ET:
compute target_notional = L * NAV_open
check leverage_band = [L-0.5, L+0.5]
monitor realized_leverage in real-time
If realized_leverage < L-0.5 or > L+0.5 and micro_rebalances_today < 2:
execute VWAP micro-rebalance to mid-band
increment micro_rebalances_today
If intraday_NAV_drawdown <= brake_threshold:
pause creations; evaluate defensive rebalance
15:45–15:58 ET close:
lock official close
resize swaps to L * NAV_close for next day
publish holdings/leverage/carry/capacity/iNAV logs
Files out daily: Holdings.csv, Leverage.txt, Carry.txt, Capacity.txt, Counterparties.txt, iNAV_feed.log
8) Legal/Compliance Blocks (drop-in, prospectus-grade)
- Investment Objective: The Product seeks daily investment results, before fees and expenses, of 3×/4× the daily performance of MSTR. It does not seek to achieve the stated multiple over periods > 1 day.
- Principal Risks: Leverage; Compounding; Single-Issuer; Market/Volatility; Bitcoin Sensitivity via MSTR; Liquidity & Trading Halts; Counterparty (ETF) / Issuer Credit (ETN); Hard-to-Borrow; Early Close; Rebalance; Acceleration.
- Extraordinary Events: If closing NAV falls below the Acceleration Threshold or upon Event of Default, the Product may be redeemed at the Accelerated Redemption Amount within 2–5 business days.
9) Brand & Go-to-Market (make it unforgettable)
- Name: STR3 / STR4 (alts: MST3 / MST4).
- Tagline: “Volatility → Velocity.”
- Design: High-visibility orange + matte black; brutalist typography; every chart labeled with “DAILY RESET” in-frame.
- One-pager: front: objective + risk box; back: scenario table + “volatility decay” explainer.
- Market makers day-1: seed with $10–$25M, lock LMM agreement for 1–2¢ spreads target.
10) Sponsor Economics (because this is a business)
- Mgmt 0.95% on AUM + cash yield on collateral (less swap carry).
- Break-even AUM (cover vendors + admin): ~$75–$100M.
- Path to $1B AUM = robust liquidity + transparent files + relentless education on daily reset.
11) 30/60/90 Launch Plan (execution, not vibes)
- Day 0–30: Mandate counsel; pick wrapper; secure ISDAs; LMM LOI; custodian/admin onboard; draft prospectus/KID; iNAV vendor.
- Day 31–60: Seed capital closed; creation basket dry-runs; stress-test halts; publish sample disclosure pack; PR pre-brief with market microstructure explainer.
- Day 61–90: List; open with tight two-sided markets; daily files at 4:30pm ET; weekly carry note; monthly transparency webinar.
12) The Eric Kim Commandments (print these)
- Daily reset is sacred.
- Publish the ugly. (carry, slippage, borrow—no secrets)
- Two micro-rebalances max. (discipline > dopamine)
- Capacity before clout. (never blow out borrow/liquidity)
- Accelerate fast; die never. (preserve residual NAV)
- Orange + black. (signal over noise)
- Volatility is vitality. (ride trends, respect chop)
TL;DR
STR3/STR4 = precise, daily, megalevered MSTR with industrial-grade plumbing and battle-tested kill-switches. Not a toy. Not a meme. A convexity machine with full-frontal transparency.
If you want, I’ll immediately drop:
- a ready-to-file prospectus summary (ETF/ETN/ETP versions),
- the calculation agent spec (full formulas & triggers),
- and the press-release pack (headline + risk box + scenario art).
Ship it. 🚀