Is This Warranted?
Happy Sunday Folks!
The Fall is upon us, and that means bikinis and birkenstocks are out and brollies and blundstones are in. At least for the folks living in the Pacific Northwest.
Doing Fall in Raincouver also means that I’ve had to shift my outdoor workouts and bring them indoors. I haven’t been a huge fan of going to the gyms historically, and so I usually spend my spring and summers working out outdoors as much as I can. Tennis, biking, running, hiking and paddling. You guys know it! But all that becomes difficult when it’s wet and cold outside. And so I was looking for a gym but wasn’t that keen because most gyms still require you to wear a mask even during the workout.
But luckily a couple weeks ago, I was picking up some mail and chatting with my building manager when he asked if I knew about the building gym. To which I shrugged and said I was looking for a ‘real gym’. He then got up from his chair and said that let me give you a tour right now and then you can decide for yourself. I reluctantly agreed and we went to see the gym and holy shit, was he right! Guys, this gym is legit. It’s got everything - all the equipment and the space and then some. And it's free! I was actually embarrassed because I have lived in this building for 3 years and I didn’t even know where the gym was located. But better late than never and I am so glad that I’ve found it now. And the best thing is that no one is ever there. Like no matter what time of the day I go, it’s empty. Probably because there are other fools like me who think it's a shitty little gym and haven’t bothered checking it out. But I am not complaining!
Ok, now that the gym situation is sorted, we can try to sort the SPAC Warrant situation. As I’ve written before, the new popular trade is to go long the SPACs that are nearing their merger close and would possibly be experiencing high redemptions. This trade is agnostic of the deal quality, or actually no, it’s predicated on the deal quality being poor because shittier the deal, higher the likelihood of high redemption and low float, which enables the short squeeze. In addition to utilizing this strategy to make a quick buck trading the common shares, there is also a lot of chatter around trading the warrants, especially the ones that are trading below $1. So I went digging…
Out of the 104 SPAC deals (with warrants) that have announced mergers and are waiting to close, there are 29 that have warrants trading below $1 as of this past Friday’s close. The table below is sorted by “Expected close date”, (keep in mind that they are ‘expected’ and not ‘confirmed’ until a few days prior to closing so the dates will probably be off a bit).
Out of the 29, there are 12 that are trading below $0.75 and 5 below $0.65.
The idea with warrants is similar to that of commons that upon merger, if there is a short squeeze, then the warrants will go up as well. While they have already started to recover from their All Time Lows, they are still heavily down from their peak levels in February. And the opportunity to buy some of these below a buck seems very appealing to the Wall Street bets crowd. Also because there is this very dominant fallacy among the retail crowd that “low price” = “cheap stock”, as if you’re getting a great deal or something. It’s absurd but it works - see the WealthSimple ad below. But instead of criticizing wealthsimple for mis-guiding the retail crowd and perpetuating that fallacy, let’s look at it from the trade perspective because this kind of advertising is actually a tailwind for the under a buck warrant trade!
But keep in mind that volume is often an issue with the warrants and the bid and offer spreads are quite wide, making it much harder to get fills. I actually wanted to gather the volume and ATL/ATH data on these warrants as well but oh boy, tracking warrant data remains quite a pain in the butt. You can’t really code it because the ticker symbols often don’t work because of the W/WS at the end of the regular SPAC ticker, and so its quite manual.
But if any of you want the google sheet link to this data, let me know. Happy to send it!
With that, I’m off to my new favourite spot in my building ;) Have a great week ahead!
-Nikita
Guys: a typo - the Amplitude deal is with Jasper Therapeutics and not Leafly.
How did you come up with the expected close dates? I am unaware of shareholder vote dates for many of names listed here.
Also, the way to code for the warrants is by cusip #, it’s the only way to avoid issues where the ticker is different for the sake warrant across various platforms. I have all warrant cusips (along with common and units) if you need that data.