Did you notice that MSTR's short ratio is abnormally high? According to FactSet and Goldman Sachs data, this stock is reportedly in the most shorted category in the U.S. market. With a market cap of $34 billion, the short position reaching 14% is quite an unusual level.

What's interesting is that many of these short positions are actually basis trades. In other words, investors are buying BlackRock's IBIT (Bitcoin spot ETF) while simultaneously shorting MSTR stock, aiming to profit from the narrowing premium and carry returns. It seems that Jane Street has also recently been buying large amounts of IBIT, which is likely part of this strategy.

However, the important point is that this trade has not been successful at all this year. MSTR is up 12% over IBIT. While MSTR has fallen 20% since the beginning of the year, IBIT has fallen 27%, meaning MSTR is relatively stronger. In other words, the risk-reward ratio of this short position is breaking down.

Since 2020, MSTR has accumulated Bitcoin, now holding 717,722 coins. Unrealized losses are around $7 billion, but from a long-term perspective, this strategy might still make sense. However, in the short term, there are signs that the short sellers may start adjusting their positions.