Strategy's Stock Fails to Deliver $180M in March, Short Sellers Struggle

Traders who have taken short positions in Strategy (MSTR), a company known for its significant bitcoin holdings, may be encountering difficulties in finding sufficient stock to repay lenders who supported their bets on the company's value decline. This situation is indicated by the occurrence of more than $180 million worth of failed trades in MSTR stock during March, according to data from the SEC and Fintel. These failures, known as Failures to Deliver (FTDs), occur when a seller does not deliver shares to the buyer by the settlement deadline, which is now just one business day after the trade (T+1).

FTDs can arise from administrative errors or slow settlement systems, but they can also signal that short sellers, who borrow shares and sell them in anticipation of buying them back at a lower price, are struggling to find enough stock to repurchase. This scenario often suggests that a significant price movement in either direction may be imminent.

As Strategy's share price increased throughout March, MSTR experienced multiple large FTDs. Notably, on March 26, over 186,465 shares failed to settle, valued at nearly $64 million. Other high-volume days included March 17 and March 21, where combined failed deliveries totaled tens of millions of dollars. In total, 609,000 shares failed to deliver during the month, a substantial amount for a single stock.

Short interest in the stock remains high. As of April, around 29 million shares are sold short, representing more than 12% of all publicly available shares. Additionally, about one-third of MSTR trades on April 22 were short sales executed off-exchange in private venues like dark pools. While these trades are fully counted in official short-interest reports, the lack of pre-trade transparency makes it challenging for the public to track short-selling activity in real time.

MSTR’s stock price has been on an upward trajectory recently, gaining 35% since the beginning of March and rising 44% from April's lows. The stock also rallied 8% on a recent Tuesday. As the price continues to rise, short sellers may be compelled to buy back shares to cover their positions, especially if they cannot borrow more. This scenario can trigger a short squeeze, a sharp rise in price caused by short sellers looking to buy to cover their bets. This dynamic has already been observed in the bitcoin market over the past 24 hours.

While FTDs do not necessarily indicate price manipulation or predict a squeeze, their size and frequency in MSTR suggest a potential breakout or breakdown driven by short sellers. The elevated short interest and the significant number of failed trades indicate that the market may be on the verge of a notable price movement, which could be influenced by the actions of short sellers.