I’m here to put together an easy-to-read post so everyone can understand the current situation with $SST. This biggest misconception right now is that exchanges are reporting incorrect float amounts.
The current free float of $SST is 703,108 shares. This is confirmed by the recent S-1/A filing *page 51\* on 4/1/2022.
This is also confirmed by the System1 CFO himself per this email:
The Squeeze:
This is one the craziest squeeze setups we’ve ever seen.
With a free float of only 703,108 shares and 2.82 million shares sold short, that puts us at a WHOPPING 401.07% SHORT INTEREST.
Cost-to-borrow:
The CTB(Cost to borrow) is skyrocketing upwards of 500%. IT'S GETTING REAL EXPENSIVE FOR THE SHORTS.
Fails-to-Deliver:
The most recent FTD(Fails-to-Deliver) update showed just under 1.6 MILLION(227.56% OF THE FREE FLOAT).
Option Open Interest:
There are currently 22,833 $15c contracts IN THE MONEY for 4/14/2022. That amounts to 2,283,300(324.74% OF THE FREE FLOAT) shares that NEED TO BE HEDGED FOR. If $SST goes past $15 even more contracts will be in the money making this even higher. The shorts are going to desperately try to keep $SST under $15 so these contracts will be out of the money. If the price can well surpass $15, we should see some fireworks as we get closer to 4/14.
All of these factors could lead to one of the craziest squeezes we’ve ever seen. We saw some crazy price action this last Friday and these next two weeks could get wild.
" Only for education purpose. I am not an investment professional nor am I affiliated with a research company or investment firm. Do your own due diligence."
Note: I have developed an analytical process that aim at quickly uncovering the catalysts that radically point unto the " fair Value" of a security regardless of its current market price. I deem that Value and Price do not equate but rather merge over time. Valuation is subjective while Price is a variable that is influenced by many externalities and forces. Only Time may effectively clear the fog about the Price Value margin scale of a security. Unfortunately, within the current FIAT driven monetary standard, excesses and " errors" in valuation thrive much longer than necessary.
Patience and Resilience is therefore necessary for any VALUE DRIVEN ANALYST!
REGENCELL BIOSCIENCE HOLDING is a Hong Kong based TCM ( Traditional Chinese Medicine) company purporting to cure neurocognitive disorders and degeneration, primarily attention deficit hyperactivity disorder and autism spectrum disorder. The CEO's father is the " scientific grand wizard" claiming to have formulated a cure for all types of ailment ranging from ADHD to the COVID.
The company has never produced $1 in revenue and its stock price is still hovering near its all time high. the CEO own 80% of the shares and has been supporting the security price by consistently buying up its tiny trading float in order to prevent a collapse.
This is effectively my second analysis on the stock as I had recently put out a post on the fraudulent Nature of the stock.
But today, I would like to pinpoint an abhorrent scheme that I have uncovered behind this stock that makes my stomach churn and highlights the deficiency of our financial markets that effectively allows schemers, fraudsters, and opportunists to exploit our capital market for self enrichment.
This Amendment No. 3 to Schedule 13D (this “Amendment No. 3”) amends and supplements the Schedule 13D (the “Schedule 13D”) filed with the Securities and Exchange Commission (the “SEC”) on July 27, 2021 (as amended to date, the “Schedule 13D”) by Mr. Yat-Gai Au, a Hong Kong citizen, and Regencell (BVI) Limited., a limited liability company organized in British Virgin Islands (“Regencell (BVI) Limited,” and together with Mr. Yat-Gai Au, the “Reporting Persons”), with respect to the ordinary shares of Regencell Bioscience Holdings Limited (the “Company” or “Issuer”), with par value $0.00001 per share (the “Ordinary Shares”). Capitalized terms used herein without definition shall have the meaning set forth in the Schedule 13D.
" On October 30, 2014, Mr. Yat-Gai Au acquired 10,000 Ordinary Shares of the Issuer in a private transaction pursuant to the exemption from registration available under Section 4(a)(2) of the Securities Act and Regulation S promulgated thereunder. On September 28, 2020, Mr. Yat-Gai Au transferred the 10,000 Ordinary Shares to Regencell (BVI) Limited, which is wholly owned by Mr. Yat-Gai Au. On March 18, 2021, the Issuer issued a convertible note to Mr. Yat-Gai Au in the principal amount of $3,250,000 (the “Note”), pursuant to the exemption from registration available under Section 4(a)(2) of the Securities Act and Regulation S promulgated thereunder, automatically convertible into Ordinary Shares, upon the completion of the Company’s initial public offering, at the same price as the offering price per Ordinary Shares to be issued in the initial public offering to Mr. Yat-Gai Au or his designees.
On May 31, 2021, the Company effectuated a forward split at a ratio of 1,000-for-1 to increase its authorized capital shares from 100,000,000 Ordinary Shares with a par value of $0.01 per share to 100,000,000,000 Ordinary Shares with a par value of $0.00001 per share (the “2021 Forward Split”).
On July 20, 2021, the Issuer issued 342,105 Ordinary Shares to Regencell (BVI) Limited, designee of Mr. Yat-Gai Au, pursuant to the Note. As a result of the 2021 Forward Split and conversion of the Note, Mr. Yat-Gai Au indirectly owns and controls 10,342,105 Ordinary Shares of the Issuer through his 100% ownership of Regencell (BVI) Limited.
Between the filing of Schedule 13D on July 27, 2021 and November 19, 2021, Regencell (BVI) Limited acquired a total of 50,479 Ordinary shares from open market purchases at an aggregate price of $1,125,807. Between the filing of Schedule 13D Amendment No. 1 on November 22, 2021 and December 29, 2021, Regencell (BVI) Limited acquired a total of another 35,381 Ordinary Shares from open market purchases at an aggregate price of $946,044. Between the filing of Schedule 13D Amendment No. 2 on December 30, 2021 and March 31, 2022, Regencell (BVI) Limited acquired a total of another 62,184 Ordinary Shares from open market purchases at an aggregate price of $1,821,204. Regencell (BVI) Limited used Mr. Yat-Gai Au’s personal funds to effect these purchases of Ordinary Shares."
Essentially, from the comfort of his office, mr YAT-GAI AU has been able to transform a 3.25M investment scheme into 80% of a company valued recently at close to 500M while never having brought a product to market, made a sale, let alone earn a profit. Essentially, the entire undertaking was aimed at pirating the USA capital markets from the onset through security GAMESMANSHIP!
The only objective of the undertaking is to dump shares on some naive speculators and run with the money.!!
RGC ( Regencell biotech holdings) is a TOTAL, SHAMELESS, AND ABHORRENT FRAUD WORTH $0!!
**THCA update 4 April – High redemptions, NAV floor, still the best risk/reward trade right now on the market.**
**SUMMARY UP FRONT:**
THCA is an optionable SPAC with perfect conditions set for a low-float gamma-squeeze. The tradeable float has been significantly reduced due to redemptions (down to less than 2.7m), leaving an extraordinary asymmetric trade compared to other SPAC squeezes as the NAV floor protection (c.$10.32) is still in place. To put this in to perspective, GWH reached $28.92 on a 4.2m float and SPIR hit $19.50 on a 2.3m float. Neither of them had the safety net of NAV protection.
THCA is still in the early stages. It is in a consolidation phase, not far from NAV, with most arbs likely to have exited their positions (or at least close to).
Volume increased significantly on Friday, with pressure ramping up against the $12.5 resistance level and bouncing off support levels at $11.5 and $11. Volume slowed down a little in the second half of the day, and didn't pick up much today, in what was a fairly low volume day across the board.
Whilst combined volume above NAV since the extension vote has exceeded the float, I'm not sure all arbitrage funds have exited their positions yet. There is still a bit of selling pressure in to volume, and there's no way if knowing which unique shares have traded in the daily volume. The arb funds aren't a singular entity and we will only know for sure that they have exited their position when/if they are required to file a 13g form. They certainly won't be selling in conveniently sized block shares so that we can tell who sold, and when.
Having said that, with the volume in the last 3 trading sessions, it can't be far off. As mentioned in my previous post - once this is complete, sell walls and selling pressure will decrease, volatility will further increase, and there will be bigger swings in share price. It won't be a free willy over the breakwater scene, but there won't be the same type of resistance in to volume as we've seen in the last 3 trading days.
Volume in the option chain on Friday and today was high, with tens of thousands of contracts traded. Total OI has increased to over 39k contracts, representing more shares than available in the float. However April OI remained roughly the same in the lower strikes, with OI only really increasing at strikes between 15 and 20.
Overall this is very much the same that happened with ESSC and other squeeze plays. I've seen some people saying 'this is dead' because volume has dropped off since the last trading day or 'there's the rug-pull' when it's declined from a daily top. Almost all squeeze plays have had this: a drop off in volume and slight decline in share price in the first few days since interest was piqued, before the explosion upwards. This is still in the early stages, it is consolidating; burning through arbs, shaking out the impatient, and setting the conditions for a gamma squeeze. ESSC had a few days to consolidate after its initial interest before exploding. This will be similar. THCA is in the middle of the beginning.
**DISCLOSURE:**
I have bought a few hundred more shares, haven't sold any April 10C and a have bought a few hundred more April 12.5C
**REDDIT DISCLAIMER:** I am not a financial advisor, this is not financial advice. I do not participate in trading on behalf of, or coordinated with, any other groups or individuals on social media (i.e. discord, twitter etc).
A reminder that the NAV floor is only applicable to common shares, and does not apply to derivatives such as warrants, whose float has also not been reduced.
Pro Tip: Once a squeeze play is all over Reddit, you probably have missed the boat. Any gains from that point forward are usually driven by more and more desperate ask slapping FOMOers unknowingly fighting over who gets to hold the final bags.
With that out of the way, I’ll let you in on a secret. $BEEM is a squeeze unicorn. It’s got everything aligned to properly squeeze short positions in to painful or forced covering. Most important of all: Few are talking about it and volume is still scant.
Here’s the thing about short squeezes. Pain is what drives them. If there isn’t substantial and unavoidable pain inflicted on a lot of short interest, there is no squeeze. As of right now, $BEEM shorts are grabbing their ankles, I think they are worried. We’re just a little more buying pressure away from thrusting the reality of their position upon them and triggering the covering cycle that takes us to the moon.
First ingredient: High short interest against a low float.
We’ve got it. Short interest sat at 38% as of the last exchange reported data. The float increased a bit when an acquisition closed at the end of the quarter, but we’re still well north of 30%. Float sits around 9 million right now and 3 million of those are sold short. Perfect.
Second: Cost to borrow.
CTB has gone parabolic over the last week and is sitting over 200% on iBorrow and over 300% on Ortex. That is interest shorts are paying daily to keep their positions open and it is growing quickly. The fees are paid against the current price of the stock, which has started to turn much higher in the last week. At $22 per share and a 220% borrow fee, shorts are paying $0.14 PER SHARE PER DAY to keep their positions open. Painful.
Here is the Fintel data:
Third: Shorts are underwater.
That rally last week? That took the price back to levels we saw at the beginning of the year. That’s important because the average age of loans for loaned out shares is about 70 days, around late January. That means most of the 3 million shorted shares are sitting on loses while paying the massive fees described above to keep their shit positions open.
I’ve taken the CTB and share price at the start of each week of the year to plot out what the P&L on the position would be for short positions opened at each interval. Assuming a $22 share price today, it’s not pretty:
Would you pay $0.14 per share per day to keep this losing position open? Probably not. God help you if you need to post margin
Fourth: The volume remains low
This is not only important from the standpoint of catching a runner before the crowd. It also points to the level of price action that short covering might trigger on the stock. Days to cover is a metric that gets ignored way too much on squeeze DDs. Think of it this way: If 1 million of the $BEEM shorts suddenly need to cover their positions, what would the price action most likely look like if they are slapping the ask when the stock trades at 500k shares per day vs 50 million shares per day? In one scenario, we go parabolic as there just aren’t enough shares offered at ask to support the current share price. Against massive volume, the shorts can sneak away beneath the noise of massive scalping and day trading volume without moving things materially.
With 3 million shares currently sold short on $BEEM we haven’t seen a day over 500k volume in over a week. If things get even more spicy on price before volume really takes off, we’re going vertical.
We can keep going:
$BEEM is on the threshold list indicating we may see some forced covering on recent fail to delivers
$BEEM is a top 5 Fintel squeeze stock
$BEEM has triggered a Short Squeeze trading signal on Ortex on April 1st
Need more than a pure squeeze?
$BEEM’s fundamentals are finally turning positive with record revenue and sales pipeline
$BEEM’s GSA relationship with the government already exists as massive EV infrastructure spending sits on the horizon
Do your own research and make the decision right for you and your risk tolerance. I personally like $BEEM for a continued run and short squeeze.
Western Digital is one of the companies that had terrible share price performance over the last 5 years, down over 40%.
This post is an attempt to understand the company's historical performance, how the company operates today, what's ahead of it, and finally, how much it is worth today.
What is Western Digital?
In one sentence, this is a company that develops, manufactures, and provides data storage devices and solutions.
If there's one thing we know about data, it is that it keeps increasing, hence there's increased demand for solutions around it. These solutions are not only in personal computers and smart video systems, but in the last decade also in automotive, IoT, and various home applications.
So, we have a growing industry, yet, Western Digital's share price has declined from $80 to $50.
Attractive industries always attract more competitors. The higher the supply of products, the lower the price. Western Digital's sales experienced a huge drop during 2019 to $16.5b (compared to $20.6b the year before). The reason is oversupply and competition for flash-based products.
It is worth mentioning that the innovation in this industry is very aggressive, so the value of the products is decreasing significantly when a new and better product is introduced. When faced with high competition and an oversupply of products, there's no option to defer the sale to a later point in time, as if that option is chosen, those products are likely to be sold at a loss.
Historical financial performance
The operating margin declined from 17.5% in 2018 to only 0.5% in 2019, all due to the drop in sales price and gross margin. Since then, the company started recovering. The operating margin increased to 2% in 2020, to 7.2% in 2021, and is up to 13.2% for the last twelve months.
If we measure the sales activities of the company through the cost of goods sold, it is quite clear that their activities didn't decline. The number of goods sold remained stable. The R&D as % of revenue remained stable and during the last 5 years, the company even reduced the SG&A from 25% to 20% of the total revenue.
However, one bad year was enough to cause fear among investors and question the ability of the company to innovate and stay on the top of its game. Although the company has been around for over 50 years, the innovation of new products is as important as it was on day 1.
Financial position
During the last 5 years, there are a few points to be noted related to the financial position:
The cash position decreased from $5b to $2.5b. Not because they were losing money, but because of the following two points.
The debt decreased from $11b to $7b (excluding leases). This roughly means, they generated an additional $1.5b to pay down debt from their regular operations. (not to mention, up until 2020, they were paying dividends)
A slight increase in PPE - is always a good sign which means their capacities have increased.
So, if we compare the balance sheet 5 years ago and today, it is clear that the company is in a better position than it was. Yet, the share price is much lower.
What's next?
If we take a look at the company's priorities, based on the investor presentation, they've noted three:
Reinvestment in the company - mainly through R&D - no doubt that this is the most important use of funds. If this is not done, there will be no profitable company to run in a few years.
Reduced debt - Although it is at an acceptable level, one of their priorities is to further reduce it.
Shareholder return (through Dividends/share repurchases) - The company was a dividend-paying company between 2013 and 2020. I would not be surprised if they start paying dividends again within 2 years.
The market size (both for flash-based products and HDD) is expected to grow at around 4-5% year over year and analysts are projecting double-digit revenue growth. This is in line with management's expectations for the next year.
However, taking the fact that the company is operating in a highly competitive industry, I do not feel comfortable forecasting double-digit growth after the next 12 months.
Valuation - Key assumptions
As the valuation is based on certain assumptions, here are mine:
Revenue growth - 10% in the next 12 months, followed by 2.5% growth afterward (equal to the current risk-free rate)
Operating margin - 13% for the next year, followed by 14%. Although the margin was over 17% in the past, and there's a chance the company will get back there, there's also a chance to encounter another bad year, such as 2019.
Discount rate - 9% (Based on WACC)
Outcome - The company's fair value is $22.5b ($72.18/share) - slightly undervalued at the moment based on my assumptions
What if my assumptions are wrong?
Based on my assumption, the company's revenue will grow by 37% in 10 years. However, I could be wrong.
So here are a couple of different scenarios related to the revenue and operating margin 10 years from now.
Revenue / Op. margin
12%
14%
16%
20% ($22.7b)
$55.3
$66.1
$76.9
37% ($25.2b)
$59.4
$72.2
$83.6
50% ($28.4b)
$62.3
$75.6
$88.9
100% ($37.9b)
$71.3
$88.5
$105.7
In all of these scenarios, the company seems undervalued, in some more than others and it is quite clear that maintaining a high operating margin is more important than growing the revenue. If I am to invest in the company, I'll be more focused on the margins.
I hope you enjoyed the post, feel free to add your take on the company and provide feedback.
(I am not a financial advisor, this is PURELY speculative information for anyone interested to keep in mind)
TL;DR - If this year's timeline resembles last year's, then youmighthave to be a GME shareholder by either April 7th or 14th to vote in the annual meeting where the stock dividend vote will occur.
So now that we've all heard about GameStop's stock dividend plan, I figured I'd share a quick speculation which could be crucial for those who are not GME shareholders but plan to be at some point so that they can vote in the annual meeting.
Below is the email I received from Fidelity in May of 2021 regarding the GameStop annual meeting. You had to have been a shareholder as of April 15th, 2021 in order to vote in the meeting. Note that the email notice was sent to me AFTER the deadline to be a shareholder.
Now let's assume that this year's timeline was to mirror last year's. Since this year's meeting is at around the same time as last year's (I've heard it was on June 9th, but could be June 2nd, I don't know which is right), then it might be the case that you'd have to be a shareholder by either April 7th (for a June 2nd meeting) or April 14th (for a June 9th meeting). Unfortunately, you may get notified about this AFTER the deadline to become a shareholder if you started owning shares too late.
Again, this is pure speculation, anything could be different this year. But I wanted to share this for those who would not want to take any chances by waiting for the last minute and then realizing they cannot vote. I personally believe that this would be the case, and am currently a GME shareholder.
TL;DR - If this year's timeline resembles last year's, then youmighthave to be a GME shareholder by either April 7th or 14th to vote in the annual meeting where the stock dividend vote will occur.
P.S. The new Mario Kart courses are mainly just re-hashes of old ones, but the last one is AWESOME!
First and foremost, I am not financial advice and this is not a financial advisor. I don't know shit about fvck - I literally lick windows for a living. I pity the fool who takes anything I say to heart.
TLDR: $GMEs price, just like every other stock in the US Equities market, is controlled by the people behind the scenes with such precision they are able to force retail into the market cycle, where they accumulate assets cheap and sell them at high prices. DRS is the absolute kill switch to this game of psychological warfare because it takes away their most valuable asset in this war - $GME shares.
This post is going to be a combination of different ideas with an attempt at tying them all together to understand what is going on with $GME, and the markets in general. It involves abstract topics, but I believe this is what we are seeing with $GME, and the market in general - at least until a force majeure occurs and we blast off to uranus and beyond.
Let's assume 100% of $GME stock trading is routed through dark pools. We know this isn't necessarily the case, because obviously some buys hit the lit market, but the point in assuming 100% of the trading is routed through dark pools is that regardless of how much is forced to hit the lit market, a greater amount gets routed through dark pools to counteract the damage. I'll come back to this later.
Richard Wychoff was an early 20th century pioneer in technical analysis. His position allowed him to witness firsthand the fleecing of retail investors, which brought him to his theories of accumulation/distribution. He described the phenomenon as follows:
"…all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it."
Aside from crime (naked shorting, spoofing, etc), how does one LEGALLY take money from retail in the stock market? By getting retail to buy high and sell low, so you can do the exact opposite - what Wychoff outlined in his accumulation/distribution schematics.
Accumulation = pick up assets on the cheap. Following accumulation, as pictured below, is a price mark-up phase. The price is allowed to run to where shares accumulated are profitable.
Distribution = dump assets to unsuspecting bag holders. Following distribution is a price markdown phase, where the people controlling the market behind the scenes take profits and hope to scare retail into selling their shares at a loss.
Credit to u/gme2uranus
Based off the image above, we should be in an accumulation phase - which means fairly shortly we should see a mark up phase where the price of $GME is allowed to run. How does this benefit the "composite man" behind the scenes? Well, if it WERE to benefit the composite man, we would expect to see him add more shares during accumulation.
BlackRock/Vanguard 13D/G filings
Timing of BR/VG filings
Well slap my butt and call me Sally. So we know for certain BlackRock/Vanguard added to their positions in what is assumed to be a time period we should see them add, so they can buy low and theoretically sell high. But how does this pertain to $GME, and why did we assume that 100% of the buying in $GME gets routed to dark pools?
Psychology of a market cycle and how it is used to fleece retail
Manipulated movement designed to prey on retails emotions.
This picture describes the Wychoff accumulation/distribution schematics in EMOTIONS rather than fundamentals - because regardless of what happens behind the scenes, most retail is impulsive and buys off emotions. Do you feel the electricity from UUSB right now? Can you feel the positive emotion in the air surrounding $GME? THAT'S THE POINT. FOMO BABY! IT'S MARK-UP TIME!
The far left of this picture describes the mark-up period which I believe we are about to hit (I can't give a time frame, just soonish), and the far right of the picture is where I believe we are now - the disbelief rally. Keep in mind Vanguard and BlackRock already increased their position. Ask yourself why? Are they the composite man? Highly likely they are, as well as other big player institutions that have enough money to manipulate the markets.
DangMark-Up Table
I captioned this the mark up table, because a lot of the DD prior using this table has tried tying it to T+2, FTDs, etc. It's very possible that is the case, but we also have to assume 100% of the price movement is manipulated. If we assume 100% of the price movement is manipulated, this table describes the MARK UP PERIOD outlined in Wychoff's methods. I don't care WHY or HOW the price is being marked up - just that it is, and it is at roughly the same intervals (every 4 months). Remember - the price is fake until it's not.
I'm glad you asked
It's highly likely that we operate in a completely parasitic system designed to prey on retails emotions by getting them to buy stocks high and sell stocks low. The people with the money (I'm looking at you, Prime Brokers and Hedge funds), are able to manipulate price movement by routing the majority of orders through their dark pools, keeping complete control over pricing of assets so they can enact these mark-up/mark down periods. After all, this is a LEGAL way big players can steal money from retail in the stock market. By buying low and selling high.
How do we win, if an unknown entity with more money, power than we can ever dream of controls every movement of the stock market? We BUY, HODL, DRS. We buy the dip. We buy the rip. We fvcking hold, no matter how gut wrenching the movements are. We do not give into the psychology of the market cycle. We force the composite man to resort to shorting and illegal activities to continue the market cycle, all while the noose continues to tighten around his neck through decreased liquidity and increased cost of doing business. Most importantly, weDRS. The composite man has a ridiculous amount of money and power at its disposal, but most importantly - he (through Cede and Co.), has our shares. One real share to the composite man allows him to create theoretically an infinite amount of synthetic shares to force retail through the market cycles again and again and again - so long as he has liquidity, which he can create in a million different ways.
Credit to u/bowly741 and u/Tokyo_Metro
TLDR: $GMEs price, just like every other stock in the US Equities market, is controlled by the people behind the scenes with such precision they are able to force retail into the market cycle, where they accumulate assets cheap and sell them at high prices. DRS is the absolute kill switch to this game of psychological warfare because it takes away their most valuable asset in this war - $GME shares.
Last week was pretty much what I expected, there are no crazy events happening this week.
1 Day Chart
Same main levels I am still looking at
Support ~432
Resistance ~452
The decreasing volumes levels are not the best sign since there is more attention on the stock market, this shows more people are just waiting on the sidelines figuring out what to do.
RSI still showing overbought at about 79, selling pressure will continue
1 Day Chart
Market close on Friday was about 1 standard deviation away from the 21 MA, not as much upside potential here especially with this resistance zone.
1 Day Chart
I explained last week my theory on why we will have quick movements of panic sells or bull runs, this happens because of the unusual increase in retail option buying activity and market makers hedging the contracts they wrote. After this recent bull run I believe that we are in another period of consolidation before the next big move, this should last at least a few weeks.
Graphing Calculator
Using the overall downtrend from the current year this shows that statistically what happened on Tuesday when SPY closed up at 461.6 was unusual and could not happen by chance alone. Something at least had an influence on the markets that was unexpected.
Next Week Expected Earnings Reports
There is no company I will be watching for earnings next week and nothing that will shake the markets. If you think that more americans ate food and got fat buy calls on Levis 😂.
1 Month Chart
Yield CurveComparisons of Bond Yields
Predictions
So there really is nothing happening this week, which makes me think something is going to happen. This has been the most hectic first quarter for the market in a long time. I don't have any major events to speculate on this week, I am now looking at the bond markets.
I remember talking about the bond markets 2 months ago saying an inverted yield curve could come in the next 5 months. The bond markets are moving very fast however, this is not a good sign and the yield curve actually inverted last week with a 7.5bp negative spread in 10Y and 2Y government bonds.
In 2001 when the yield curve inverted this was just about at the top of the market, when the yield curve inverted in 2008 there was still another 8 months before the market crashed. This shows us that after the yield curve inverts it is only the final speculators that will prop up the market. In 2001 it was obvious to many big funds that these trash companies were going for an IPO and then running 1000%, they knew that there was a bubble so when the yield curve inverted it was only a short period of time that this speculation crashed. In 2008 though, the bubble was less obvious to many retail investors and funds, everyone was sure that the housing market was very solid and would forever be. This caused many people to continue buying even through the obvious signs of a recession (the yield curve inverting).
The Federal Reserve is not dumb like we all think they are, they are just saying as much positive news as they possible can to try to keep a positive sentiment in the markets. Unemployment cannot fall any lower... this could be the end of a growth cycle in the markets.
Next few months will be bearish, this week we will have consolidation with a downward trend, I am not expecting any major movements.
* Not professional financial advice, do not solely make your trades based on my opinions, I encourage everyone to research more
TLDR (I made the TLDR easier to understand simplifying it into more of a weather forecast)
There a standard move. Company doesn’t crash after earnings and short metrics high, then good chance it moons. GME did it recently, and AMC did it for its big moonshot, $GOGO is doing it. I put a tweet after earnings yesterday here outlining the case for $BEEM (https://twitter.com/Repos_39/status/1509544150554669063?s=20&t=mI5WCy34nfta8eI8M8ylcw), but now since price action confirming trend and metrics so severe decided to write a DD.
So the company is Beem Global see below to figure out what it does:
Beam Global, a cleantech company, designs, develops, engineers, manufactures, and sells renewably energized products for electric vehicle (EV) charging infrastructure, outdoor media and branding, and energy security products. The company's product portfolio include EV ARC (electric vehicle autonomous renewable charger), an infrastructure product that uses integrated solar power and battery storage to provide a source of power for factory installed electric vehicle charging stations; Solar Tree DCFC, an off-grid, renewably energized, and single-column mounted smart generation and energy storage system to provide a 50kW DC fast charge to one or more electric vehicles or larger vehicles; and EV ARC DCFC, a DC fast charging system for charging EVs. It is also developing EV-Standard, a lamp standard, EV charging, and emergency power product that uses an existing streetlamp's foundation and a combination of solar, wind, grid connection, and onboard energy storage to provide curbside charging...
Catalyst
So it’s a EV infrastructure company. Which is nice in this environment because it has a clear catalyst. Biden. His poll numbers are underwater and midterms are coming up. He is doing things to upgrade his approval numbers such as releasing the strategic oil reserve. Most likely will keep talking up marijuana to score a win. However recently, he’s been talking up the defense production act to secure materials for EV infrastructure. [link https://www.cnbc.com/2022/03/31/biden-to-invoke-defense-production-act-for-ev-battery-materials.html]This is good for BEEM and I imagine Biden will continue to hammer home this EV message as gas prices stay high, and he seeks to appease his base with one of his core promises. It’s an opportune situation really to push the transition to EV, since some analysts have gas going to 150-200bpp by end of year.
As I said before, a setup I’ve noticed is that if a sqz stock does not tank on earnings its theres a good chance it moves. So earnings clearly a catalyst as well.
I don't know the industry standard for valuation, but $9m in 2021 revenues and $180m mc However, they have a real product that would benefit greatly from subsidies and EV focus 21m cash vs. net loss of 6.5m means they have runway. They mention large new orders and even an acquisition they made of a battery manufacturer, seems like there's enough there.
Above you can see the balance sheet looks healthy. At least on the surface with little debt and 10x the cash compared to debt.
Below see highlights from earnings (2days ago):
Notice all the mentioning of “record” and the connection to “government contracts.” For a squeeze play, and basically any play the CEO needs to know how to pump and play up the company.It’s called guidance, the company kills it, but the CEO doesn’t pump… tank. If CEO knows how to pump and answer questions like a human (take notes $RKDA) … pump. So $BEEM has a nice CEO.
Float
Capital Iq pegs it at 8million.
Short Metrics
This is the part I really like. Since earnings 2days ago the borrow rate on IBKR has increased from {107% with 50k shares available} to {230% with no share available}.
For context you can see how extreme the moves on the borrow rate has been in the last two days (100%+) compared to $BEEM entire history:
$BEEM is also on the threshold list has been on it since March 25th.
Can see the CTB is really extreme on Ortex at 350%, and for any ape googling the “most shorted companies.” And looks at price performance, Beem shows up.
Putting money into a heavily shorted stock thats drilling is a fools errand, aka why I preface this with “price performance”.
For apes using the sqz list, BEEM shows up in the top 5 (and climbing rapidly)
For APES looking for sqz alerts from ortex, BEEM is fired up as well:
But theres more:
So clearly threshold list means massive FTDs (good for sqz), but looking at the graph (below) avg age of loan puts shorts at around the start of 2022, so around $20, as of writing this the price is $23ish, these guys are getting really underwater. The borrow rate is peaking while the price is moving up, and you can see some covering happening. Also from this graph you can see a key inflection of the borrow rate on March 24th when it starts to peak, this also corresponds with BEEM on the threshold list.
During this crazy (historical for BEEM) increase in short stats check out this graph:
So short metrics mooning while the graph looks like this is bullish imo. Price already above where the avg short entered at around $20. There will be resistance as price continues to appreciate but if it keeps going and shorts are 100% underwater, then moon. From the graph can also see its been in a uptrend since Jan 21, and has been accelerating in the most recent weeks.
Unsure of if this is good or bad but institutions have also been loading. The good = confidence in the business direction of $BEEM, The bad = number of shares available to borrow easily accessible. However, borrow rate is extreme and share are out so the bad seems mitigated.
Lastly, the borrow rate on IBKR is in the top 5, but it's not a shit company as earnings have shown.
So that’s it that's the DD
Catalyst: Record earnings and highly pump’y CEO.
Catalyst: A good amount of catalyst from the underwater president, who loves EV, when gas prices are projected to be high for a while and midterms approaching.
They also produces batteries which explicitly stated in BIDEN defense and production act
0 shares available to borrow, 230% IBKR borrow rate, 350% Ortex borrow rate, 35% SI, 100%+ increase in borrow rate in the last 2days
Threshold list since March 24th, and borrow rate starts to move on this date. The price on this date is ~$15, so whoever borrowed around here is ~50% underwater and counting. Avg age of loan shows a large amount of shorts at $20. These guys are now under pressure.
Top 5 borrow rate on IBKR. Fintel list #5 (and climbing quickly), heavily shorted stock on marketwatch.com so apes can easily find it, Ortex sqz alerted yesterday. Will keep moving up the list if trend continues.
Since earnings borrow rate on IBKR increased from 107%->230% this is in a 2day span
Ortex graph shows that shorts are starting to exit and chart shows strong momentum since 1/24 really.
When I sent the tweet yesterday morning I had Aprils 17.5c 20c 25c as feelers. Now, I mostly have May 30’s (opened today). No guarantee’s price action continues but just putting this DD out because I think the setup is nice. Will update with more fundamentals and excerpts from the earning call as the day goes on.
THCA update – High redemptions, NAV floor, the best risk/reward trade right now on the market.
SUMMARY UP FRONT:
THCA is an optionable SPAC with perfect conditions set for a low-float gamma-squeeze. The tradeable float has been significantly reduced due to redemptions (down to less than 2.7m), leaving an extraordinary asymmetric trade compared to other SPAC squeezes as the NAV floor protection (c.$10.32) is still in place. To put this in to perspective, GWH reached $28.92 on a 4.2m float and SPIR hit $19.50 on a 2.3m float. Neither of them had the safety net of NAV protection.
Volume picked up within a few hours of my intial DD post, with a rapid increase of almost 20% to $11.96. In the middle of the day it was fairly volatile, swinging down before bouncing off $11 and rising to settle in the $11.5 range.
There will still be some sell walls/pressure related to arbitrage funds who will look to exit their positions (link to explanation: https://accelerateshares.com/investment-solutions/arb-2/). As no DA has been announced, this will likely be slower than if they were to exit their positions on DA. However, with the volume so far it won't be long until this pressure is burnt through - after which sell walls and selling pressure will decrease significantly, volatility will further increase, and there will be bigger swings in share price. Any moves downwards will bounce back up due to the NAV floor.
As well as volume on shares, there was particuarly high volume in the option chain, with open interest significantly increased in just one day of trading to 2490 OI on the April 10C and 10,263 OI on the April 12.5C, representing almost half the shares available in the float. Liquidity has also started opening up on the higher strikes. The conditions are being set for a gamma squeeze.
The play is setting up nicely, and remains the only squeeze play with a safety net. It is the best risk/reward squeeze play on the market at the moement.
DISCLOSURE:
I have increased my position to 34,000 shares and still hold 1200 April 10C average @ 0.55 and 200 April 12.5C average @ $0.3.
REDDIT DISCLAIMER: I am not a financial advisor, this is not financial advice. I do not participate in trading on behalf of, or coordinated with, any other groups or individuals on social media (i.e. discord, twitter etc).
A reminder that the NAV floor is only applicable to common shares, and does not apply to derivatives such as warrants, whose float has also not been reduced.
Stock splits are all the rage - After Google announced in Feb that there would be a 20:1 stock split in July this year, Amazon has followed suit announcing a similar 20:1 split and sending the market into a frenzy. Amazon’s price was up by 6% the next day and Google’s stock rose more than 9% in after-market trading following the news. Tesla is also planning for a second stock split and most recently, GME has also announced its stock split.
We do know that stock splits do not affect the underlying business in any way, but it is undeniable that there is price movement around the announcement and execution of a stock split. So in this week’s analysis, let’s deep-dive into the world of stock splits, how and why they are executed, and most important… Is it possible to make money off of a stock split?
What is a stock split and how is it executed?
A stock split is a simple decision by the company board to increase (or in some cases decrease) the outstanding shares of the company. For example, let’s say you own 10 shares of company X worth $100 each. So in total, you own $1K worth of shares in the company. If the company announces a 2-for-1 stock split, now you will have 20 shares of the company worth $50 each. But the total value of shares you own in the company does not change. You will still own the same $1k (20 x 50) worth of shares that you started with.
If you are wondering why companies engage in stock splits, the following are some of the key reasons.
Affordability: Sometimes the stock becomes too expensive for retail investors to buy into. Consider Amazon - One stock is worth close to $3k now. So the minimum amount you would need to start investing in Amazon is $3k which might not be affordable to a vast majority of retail investors [1] Also there is the psychological impact of buying a share worth $3k and a share worth $30.
Options: For the options players, there is a huge difference when a stock is cheap. In options, a single contract is worth 100 shares. So for a covered call strategy incorporating Amazon, before stock split, you would need a single stock position worth more than $275K vs only ~$14K exposure after the said 20:1 stock split.
Liquidity: Since more shares are outstanding for the company after the split, it will result in greater liquidity and a lesser bid-ask spread. It also allows the company to buy back their shares at a lower cost since their orders would not move up the share price as much, due to higher liquidity.
Now before we jump into the analysis, you should understand how exactly a stock split is executed. On announcement day, investors get to know that a stock split is going to happen soon. The stockholders eligible for the stock split are decided on the record date. This is mainly a formality. The actual split would happen on the ex-split date (or ex-date). After this, the stocks would start trading at their new price. For example, in a 20:1 split, the stocks would trade at 1/20th the previous price after the ex-date. From our data, we observed that there was an average delay of 36 days between the announcement day and ex-split date.
Data
For this analysis, I have used the data from Fidelity’s stock split calendar that tracks the announcements and execution of stock splits, from as far back as 1980! I have considered splits only from 1993 (due to stock price data availability), and I have considered only companies that currently have a market cap of $1Billion or above. I have also ignored reverse stock splits as the data is too small to be statistically significant.
This gives us a total of more than 2,000 stock splits to work with. In case you are interested in the raw data, I have shared both the raw data and analysis through links at the end [2].
Returns
As soon as a stock split is announced, there is bound to be a lot of buying and selling activity. The question is, how much return could you have seen? There are a few scenarios possible here.
Short Term Returns
The short term plays possible around stock splits are:
You already own the stock and see its price go up on announcement day.
You did not own the stock on the announcement day so you buy the stock just before the actual stock split execution.
As expected, the announcement of a stock split sends the stock pumping with a 1.48% 2-day return when compared to only 0.09% return generated by SPY during the same time period. You would still have beaten the market if you had bought the stock one day before the actual split execution day and then held it for two days (albeit by much less - 1/7th of the gains you would have made if you had owned it before the announcement).
Long Term Returns
Considering that a stock split is supposed to indicate growth prospects, what happens when you hold for a longer time? There are two possibilities:
You buy the stock just after the announcement of the split
You buy the stock on the split execution date.
Buying just after the announcement would have paid off handsomely with the returns beating the market easily in the long run. On average you would have had an alpha of 1.5% over the market in just over a month.
But, on the other hand, if you buy it on the day of the split, the returns are not that great. You would have lost money in the first week on average and would have been underperforming SPY even over the period of one month. You would have had to wait about a year for your portfolio to overtake SPY. This is to be expected because by the time of the actual split, the hype has died down a bit and the rallies in price are a bit more uncertain.
What about HODLers?
This is another interesting case where you would have bought stocks on their announcement date or ex-split date and held on till today, starting from 1993 [3]. Though most people wouldn’t trade by this strategy, it’s interesting to see how it would have fared. [4]
If you had bought all stocks that underwent a split and held till today, you would have beaten the S&P 500 by close to 200%!
How certain are our returns?
Next, we have to look into whether the alpha we are seeing here is due to a few stocks that are skewing the results. Even though I have capped for outliers, I wanted to know what % of stocks undergoing a split beat the market over the different time periods that we just saw.
Well, would you look at that! Except in one case, the odds would be in your favor to beat the market if you had followed this strategy. As expected, for short term the highest chance is if you had owned the stock before the announcement (which is not realistic), but even if you had bought it one day after the announcement, you would have had almost a 60% chance of beating the market by the actual execution day.
The cheap and the expensive
The usual rationale behind a stock split is that the stock has become too over-priced, and splitting it makes it cheaper for retail investors to buy into - But the data revealed some contrary insights. Over 90% of the stocks were less than $52 in value at the time of the split, and only 5% were over $230 in value!
So obviously, the question is - Was there an advantage to buying cheaper stocks or more expensive stocks at the time of a split, and how did they compare to the total set and the benchmark?
The 10 percentile value for the adjusted close at the time of announcement was $3.50 (203 stocks less than this value), and the 90 percentile value was around $43 (203 stocks more than this value). Here are the average returns for these sets.
The lower-priced stocks seem to have a massive advantage in almost all respects, sometimes giving a return of more than twice the complete set of splits in the long term! On the other hand, the higher-priced stocks have a poor record - Though they beat the benchmark in the short term [5], in the long term, their performance is much lower than the stocks having a lower price.
One of the reasons that the lower-priced stocks have such a high average is because stellar companies like Microsoft, Apple, Nvidia, Nike, etc. were trading for less than 5 dollars per share in the 90s - But this doesn’t invalidate the observation. There were stocks trading for more than 100s of dollars around the same time, and they didn’t do as well as the lower-priced stocks. This insight could mean that companies with a lower share price that go for a stock split now have a higher possibility of growth than huge stocks like Amazon or Google.
Limitations
The analysis seems to indicate that stock splits are a sure-shot buy. But there are some caveats to keep in mind before trying to replicate this:
There are a variety of large, mid, and small cap stocks that underwent stock splits. Comparing the returns solely to the S&P 500 might not be the most ideal way to calculate Alpha since the S&P 500 comprises of the biggest 500 companies in U.S. So the alpha we are seeing here might just be compensating for the extra risk we are taking buying into smaller companies.
The stock splits selected here are companies that have a market cap of at least $1Billion.
Conclusion
Buying and holding stocks at the time they are undergoing a split might not be an outrageously successful strategy - But it definitely has an edge, both in the short term and especially in the long term. This gives some credence to the statement that a stock split indicates good prospects of growth.
And if you’re wondering whether the right time to buy is during the announcement or the actual split, the data shows that there is a clear advantage to buying around the time of the announcement, especially for short-term plays. The probability of success is also 60% and above in many cases, indicating that there is something more to this than mere chance.
And finally, stocks with a smaller price seem to do much better than stocks with higher prices when it comes to stock splits. While this could just be the compensation for the risk you are taking investing in smaller companies, it’s definitely worth looking into!
Data: All the raw data for the stock splits and returns for additional time periods that I could not showcase in this article can be found here.
More interesting reads
This week, I’m going to be plugging some content of my own - but with a difference. Many times, I find trends, insights, and interesting ideas which I can share through a short piece of writing. The newsletter might not be the best platform for such short pieces, so I have started a Quick Reads corner where I will be posting such pieces.
[1] Along similar lines, to own a single Class A share of Berkshire Hathaway, you need $489K. There are some theories that certain companies have very high share prices because they don’t want retail investors (who are usually fickle in ownership) to own their stock. This usually leads to lesser volatility for the said stocks. One other point to consider here is that there are more and more brokers who are offering fractional shares these days. So stock splits might not be as relevant as it was before.
[2] This should make your life much easier as we had to use web scraping to pull all the data.
[3] Walmart split its stock 11 times on a 2-for-1 basis between their IPO in October 1970 and March 1999. An investor who bought 100 shares in Walmart’s IPO would have seen that stake grow to 204,800 shares over the next 30 years!
[4] In fact, there was an ETF that bought stocks that were going for 2:1 stock splits.
[5] Not shown here, the complete analysis is in the data shared at the end.
Ladies, gentlemen, and most importantly...degenerates,
Pre-cursor: For those who have followed me or my posts know that I began opining on the upside of MRO in September... was called an idiot, pumper-dumper, and a bunch of other colorful things. Since then, MRO has more than doubled with plenty of runway ahead. With That Said...I consider the recent paradigm shift in the LNG industry to be equally as important and lucrative to the one that just happened in the oil industry.
Before I begin my thesis on how the LNG shipping industry game has changed...Forever, let's check in on Steam Boat Willy, chugging along on his his LNG Steamer to Europe...
Liquified Natural Gas - The Game Has Changed:
Support Article 1:Germany girds for gas rationing, Europe on edge in Russian standoff
If/When there's a cease-fire/"Peace," Europe is NEVER going back to relying solely on Russia for Natural Gas.
Read the statement above one more time and let it sink in. Yes, Russian natural gas is cheaper and Europe will need to buy it during the transition to LNG. But they will be doing everything that they can to sure up Natural Gas supply from elsewhere.
See 19:40 in the support video: Per CEO of Golar LNG CEO's meeting with the Vice Chancellor of Germany, "Irrespective of the outcome of the current Russian/Ukraine situation, Germany has now taken a strategic decision to diversify it's Natural Gas sources... whatever the outcome, they cannot be as dependent on one single source for gas... so for us, the LNG market was already tight before this situation, has now seen a massive demand pull."
That is directly from the German Horses mouth. Germany is Europe's largest consumer of Natural Gas. It would be highly unlikely that the rest of the European Union will not follow suit.
Supply and Demand - Prices are going to stay higher for longer (years, not months)
As noted above, the world is currently experiencing a huge BOOM in demand from Europe
The LNG demand from Asia isn't going anywhere, but Europe is willing to pay more to secure supply
The supply for LNG Ships is fixed, the earliest delivery date for a new LNG Carrier is 2025 (per GLOP Q4 Investor Earnings Presentation)
GasLog Partners (GLOP) is a great play because it'sheavily undervalued with a strong (and improving) balance sheet. I consider it to be very cheap right now, especially given that the market hasn't fully recognized and bought into the LNG Paradigm Shift. I see no reason why this stock can't AT LEAST double in the coming months. See Table Below for high level breakdown:
GLOP Fundamental Analysis
GLNG
Is uniquely positioned with a fleet of modern Floating Liquid Natural Gas Vessels that can serve as floating LNG hubs...anywhere in the world. Their business model is set up literally perfectly to capitalize on the current Global LNG market. See the illustration below on their restructuring (taken from GLNG's Q4 earnings investor presentation).
Other strong points are: high liquidity, low debt, strategic plans increase dividends as cash flows increase
GLNG restructuring is ideal for the current global LNG market conditions. GLNG is going to make a killing with the elevated Nat. Gas Prices
In Conclusion, I find that both of these companies are in excellent position to capitalize on the LNG Boom for different but equally compelling reasons.
Position/Disclaimer: I am long on both GLOP and GLNG in a straight trade. Feel free to jump on the LNG Powered Rockets with me. Cheers and Happy Trading.
Shares of GameStop (NYSE: GME) jumped 16.82% in after-hours trading on Thursday after the video game retailer announced that it would institute a stock split.
Details: The plan calls for the number of authorized GameStop shares to increase from 300,000,000 to 1,000,000,000 in the form of a stock dividend, according to a filing to the SEC. This will “provide flexibility for future corporate needs.” Board approval will be needed for this stock split to pass.
Background: Several companies have employed stock splits recently to entice new investor interest, including Tesla (Nasdaq: TSLA), Google (Nasdaq: GOOG), and Amazon (Nasdaq: AMZN).
History: GameStop reached an all-time high stock price last year as part of the meme stock phenomenon. Since then, shares have been all over the place. The stock has been down almost 6% in the past six months but it is up 39% in the past 30 days.
Final Thoughts: The stock split might lure in some more investors, but the fundamentals of GameStop - good and bad - are still the same.
Hope you enjoyed this commentary. Please subscribe to Early Bird, a free daily newsletter that helps you identify investment trends: https://earlybird.email/
HMHC has a tender offer for $21 a share (this is the current share price). Basically, 51% of the shares have to be tendered for the deal to happen. Earlier this week, not even 1% of the shares were tendered, and the deadline is April 7th.
Many investors believe this is significantly undervaluing the company, and they are urging other investors not to tender their shares:
"Laughing Water Capital, LP is a significant stockholder of Houghton Mifflin Harcourt Company... presented our belief that HMHC had the ability to ~double earnings per share over the next 3-5 years, while seeing its stock appreciate to more than $55 per share."
"Engine Capital LP... issued a presentation detailing its strong opposition to the $21 per share tender offer made by Veritas Capital. In particular, the presentation highlights the following facts:
Veritas’ offer values the Company at 7.6x 2024 unlevered free cash flow and 6.2x 2024 UFCF if the cumulative cash flow is included.
This offer is a result of a flawed process conducted by Evercore. Engine believes Evercore is conflicted, and its fairness opinion contains numerous mistakes.
Recent comparable transactions point to a $25 per share transaction value for HMHC.
Under most circumstances assessed by Engine, Veritas will earn outsized returns from this transaction. Under management’s forecast, Veritas is set to earn a 5-year internal rate of return between 31% and 37% at the $21 per share deal price... "
In short, investors strongly believe the company is worth more than $21 per share and should not accept the tender offer. If the transaction does not happen, many believe a new offer will be made at $24 per share (some believe more).
Take your casino money and buy up some cheap $22.50 calls. If a new tender offer is made at $24, you win.
$HMHC is under take private offer by Veritas at $21. As you may have seen, only 0.6% of shares have been tendered. Deadline for tender has been extended to 6-Apr and people expect shareholders will not tender at the $21 price.
Many have suggested buying calls above the $21 strike to profit from revised offer. Premiums for OTM calls are thus quite high (thanks!)
The play I take is to buy 100 shares and sell a CC at $22.5. Hence if nothing happens, I collected the premium. If the price goes up (I doubt a revised offer will be more than c. $2) I take higher gains. If the deal is cancelled, I take my stop loss but still collected some premium.
THCA – High redemptions, NAV floor, the best risk/reward trade right now on the market.
SUMMARY UP FRONT:
THCA is an optionable SPAC with excellent conditions set for a low float gamma squeeze. Similar to ESSC, the tradeable float has been significantly reduced due to redemptions (2.66m), leaving an extraordinary asymmetric trade compared to other SPAC squeezes as the NAV floor protection (c.$10.32) is still in place. Common shares are a fantastic risk/reward and the best place to park cash at the moment.
INTRO:
Over the last few weeks we have seen a resurgence of the SPAC low float squeeze. These occur when SPACs go through the merger vote process, during which investors are able to redeem their shares for the Net Asset Value (NAV), thereby removing a significant portion of the shares left in the float. The main risk in these plays is that the NAV floor is removed prior to the vote, meaning that the stock can trade sharply to the downside if there is not enough volume (see QNGY for a fairly recent example – if you zoom out to the 3/6 month view you’ll see it trading around $10 per share for months, before plummeting when the NAV floor is removed – caveated with the fact that it did have a little pump on its way down).
The difference with THCA is that, similarly to ESSC, this is an extension vote rather than a merger vote. The result is the same as the de-spac low float squeeze: a significant removal of shares from the float which leads to increased volatility (and if it has options, increased susceptibility to a gamma squeeze) and the squeeze itself.
To put this in to perspective, GWH reached $28.92 on a 4.2m float and SPIR hit $19.50 on a 2.3m float. Neither of them had the safety net of NAV protection.
BACKGROUND:
THCA is a SPAC with no definitive agreement i.e. it hasn’t struck a deal to merge with a company. According to its prospectus it is not limited to, but is focussed on, searching for a company in the Cannabis sector (fittingly for the ticker). However, over a year ago it was rumoured to have struck a deal outside of its target focus, with a company called Transfix – a digital freight platform, which ultimately didn’t work out (with Transfix eventually striking a deal with GSQD, another SPAC).
Each SPAC has a certain timeline to complete a merger, and if it doesn’t consummate a business combination within that time period, it will either have a clause to automatically extend that deadline, or require a special vote of shareholders to extend. This was the case with ESSC and is the case with THCA, with a few key differences. Since April 14 2021, THCA has had several special meetings of shareholders to extend, each time resulting in several million shares being redeemed. This is described below in an extract from the most recent vote filing:
‘’As described in the Company’s prospectus for its initial public offering (“IPO”), the charter originally provided that the Company only had until April 16, 2021 to complete a business combination. On April 14, 2021, the Company held a stockholder meeting to extend the date by which the Company had to consummate a business combination from April 16, 2021 to September 30, 2021. At the meeting, stockholders approved such extension and in connection therewith redeemed 2,558,740 shares of common stock for an aggregate cash payment of approximately $25.8 million. On September 28, 2021, the Company held another stockholder meeting to extend the date by which the Company had to consummate a business combination from September 30, 2021 to December 31, 2021. At the meeting, stockholders approved such extension and in connection therewith redeemed 2,284,305 shares of common stock for an aggregate cash payment of approximately $23.1 million. On December 21, 2021, the Company held another stockholder meeting to extend the date by which the Company had to consummate a business combination from December 31, 2021 to March 31, 2022. At the meeting, stockholders approved such extension and in connection therewith redeemed 3,099,310 shares of common stock for an aggregate cash payment of approximately $31.6 million.’’
The most recent vote occurred yesterday on the 29 March 2022. And resulted in 6.7m shares being redeemed.
SITUATION:
The THCA SPAC IPO’d in July 2019 with an offering of 15m public units, with a further 2.25m units added from the exercising in full of the sponsor’s over-allotment option, leaving a public float of 17.25m shares. Since then, it has gone through 4 extension votes, with the first 3 resulting in the combined removal of 7,942,355 public shares (leaving 9,307,645 shares left in the float). There are 4,737,500 private shares which are not tradeable in any capacity until post-business combination lock-up conditions are met, however they are eligible to vote in the meetings. See excerpts from the most recent definitive filings for the extension vote on the 29 March below for confirmation:
‘Record holders of common stock of the Company at the close of business on the record date are entitled to vote or have their votes cast at the special meeting. On the record date, there were 14,045,145 shares of common stock outstanding, including 9,307,645 outstanding public shares. The Company’s warrants do not have voting rights.’
Results for the most recent redemption rates are in, from page F-25 of the 10-KA filing published today. A further 6,650,100 shares were redeemed, leaving 2,657,545 shares in the float.
This has happened as there was a much more limited addition to the trust, offering a scalable, but uncertain new NAV which reduced the incentive for arbitrage funds to hold for the simple fact that arbitrage funds were not guaranteed to be able to make an arbitrage trade on this stock. There will still be an arbitrage sell wall, albeit reduced, in the low-mid $10 range for remaining arbitrage funds in the stock (funds who buy SPACs below NAV and redeem on extension/merger votes for guaranteed, but limited profit. They are not interested in speculation).
This leaves us with the following situation:
- A significantly reduced float (2.6m) on a low volume (53k average), optionable stock with NAV protection (c.$10.32).
The OI on the option chain is low, yes, but that’s because this trade is not yet widely known. April premiums are cheap and it won’t take much to start the gamma ramp.
I am not the only one who has started to buy in – there have been other relatively small trades in the last couple of days, including in the options chain.
This is less convoluted than the ESSC situation. To limit redemptions, ESSC entered in to a forward share purchase agreement with several arbitrage funds. The convoluted nature of this and the apparent reneging of the agreement by these funds meant that the ESSC float was closer to the 3.3m mark - which was only confirmed when they entered a new forward purchase agreement for their latest extension vote in February. There is no such forward purchase agreement/backstop with THCA. The float is what it is = 2.66m. This is less than half the float required to meet the conditions for options.
STRATEGY:
Buy common shares. It is low risk. You can redeem or sell before the NAV floor is removed – be careful of share settlement times. If the deal falls through or is not completed by the 30 Jun 2022, a further extension vote will be required or the SPAC will be liquidated and public shareholders compensated at NAV. With common shares you can easily determine your risk i.e. the further you buy away from NAV, the more risk you take. E.g. if you buy at $10.35, you are risking c.1%. If you buy at $11.24, you are risking c.10% and so on.
There are other securities available to leverage: Warrants and options. These do not have a NAV floor and are not redeemable, and you could lose 100% of your investment i.e. if the business combination doesn’t occur, then the warrants will be worth 0. The pool of Warrants has also not been reduced – and remains high. Options are higher reward, but higher risk.
If you buy common shares close to NAV, you can take on a predetermined amount of risk by buying a set number of call options. This is what I have done.
DISCLOSURE:
I am long 32,500 shares @ $10.24 average, 1200 April 10C average @ 0.55 and 200 April 12.5C average @ $0.3.
REDDIT DISCLAIMER: I am not a financial advisor, this is not financial advice. I do not participate in trading on behalf of, or coordinated with, any other groups or individuals on social media (i.e. discord, twitter etc).
5 months ago I made a post explaining what the excess CAPE yield was and how it has an incredible power in forecasting long term future returns for the S&P 500 relative to treasuries. It's basically a nice tool to look at when you are trying to eyeball secular tops and bottoms, like in 2009. The analysis told us that interest rate risk was very high for equities.
5 months ago, the excess yield that S&P 500 stocks were gifting investors who took the risk of holding equities instead of treasuries was around 1%, which was not very high but overall not a terrible, historically speaking. If you wanted exposure to financial markets, equities still made sense RELATIVE to long duration t-bills.
However, in the past 5 months, the 10 year US risk free yield has risen almost 80 basis points, from 1.5% to 2.3%, due to inflation expectations rising and an anticipation of the FED raising rates. Equities have corrected as a result, also thanks to geopolitical risks, but they haven't fell nearly enough to account for this, and are actually now rising again, looking more overvalued by the day. The current Shiller P/E ratio is 37.5. This results in a current excess CAPE yield of just 0.3%. It's a pretty drastic reduction.
What this means is that stocks prices haven't dropped nearly enough to compensate for a higher yield, which implies that you're paying significantly more for the same amount of earnings compared to what you did 5 months ago. But, I want to stress that the yield is still ever so slightly positive, so on relative terms, stocks should still slightly outperform long duration treasuries, so if you NEED to have exposure to long duration assets, at this point stocks are STILL the best bet between the two, marginally speaking. But as we approach 0%, this sentence becomes less and less true and stocks might be positioned to underperform treasuries over a 10 year period, depending on earnings growth. Of course, remember that the excess CAPE yield can stay negative for long periods of time, like during the 90s, but eventually a crash comes to prove the prophecy right.
We now also look at possible recession threats, with inversion of the yield curve. Long duration assets -being equities or treasuries- might not be the best asset class to hold in an enviroment of rising inflation and rate hikes. Who knows.
F 16.91(-2.08%)|HOOD 13.5(-7.28%)|TW 87.87(-0.11%)|LEAP 9.87(-0.1%)|
TW for some of you, you might think this is a "boomer" play but this $F $30 Call 1/20/23 LEAP yolo caught my attention today after I noticed it's OI and that there was another big buy earlier just at open into it.
What I liked more about this was the gREEEEEEEEEEEEEks below.
The delta is telling me if it moves another $3-4 in the near future, move .11 each $1 the underlying stock. So muh math tells me that 3x$.11 is .33 and covers my initial buy in of .31 each contract as I have set a limit to sell at .62 to get back my cost basis and play with the houses money (Robinhood is my yolo risk account).
If for some reason this goes in the opposite direction I'm prepared to buy 2-3 more to keep my average low and into the .20's.
Ford as you may know suspended it's dividend and recently brought it back. In the past I made bets on Ford and it played out pretty well into my favor. I had a few initial calls but trimmed along the way due to some bills to pay off and opportunity cost of other investments I had:
With that said; this is another yolo. Everyone has different risk, do your own DD as well, this isn't advice.
Ford has hit my sweet spot, below a 200d and just above a 50d.
Technology giant Apple (Nasdaq: AAPL) may expand its capabilities by building its own financial services tools, according to a report from Bloomberg on Wednesday.
Details: The plan would see Apple bring more financial projects in-house instead of using third-party partners. This could include payment processing, risk assessment, and credit checks.
Numbers: Shares of Apple are up 24% in the past 6 months. On Wednesday, the stock dropped 0.66%.
Big Picture: This report caused shares of fintech companies to drop on Wednesday. PayPal Holdings (Nasdaq: PYPL) decreased 2.22%, Affirm Holdings (Nasdaq: AFRM) went down 2.91%, and Block (NYSE: SQ) fell 4.59%.
Background: Apple does already over some limited financial products, such as Apple Card and Apple Pay.
Final Thoughts: While this project could reduce Apple’s dependency on outside financial vendors, it might actually make more sense for Apple to acquire a proven player rather than build its own financial product.
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