A SPAC Warrant Could be Any Animal, Why a Shark? – Stock Warrants HQ

A SPAC Warrant Could be Any Animal, Why a Shark?

Because, did you see Jaws?

A friend asked me why I see SPAC warrants like sharks. Because they lurk, just like the shark in Jaws, just beneath the water. And, then when the time is right…they LUNGE upward. 

But, instead of a bloody mess, we get profits…a much better outcome for all involved.

Before we dive into day 3 of SPACfolio/Shark week, a quick update. FMCI/W, what a trade this has been for us.

If you were getting my emails in July you got a free copy of the July Warrant Observer, where I told my motley group of backwater warrant traders, now was the time to pull the trigger on FMCI/W at $3. ​​​​​​​​It touched $9.83 today, not too shabby.

If you got some back at the end of July, or early August, congrats.

You’ll also see it mentioned in the email below which was sent to paid subscribers August 26th. What a great move, and they haven’t even announced when they’ll close their deal with Tattooed Chef yet.

And now…

SPACfolio/Shark Week, Day 3 

(originally sent via email to Warrant Observer members 8/26/20)​​​​​​:

Who doesn’t love a good throwdown?

We LOVE competition. We compete at everything. Sports. Academics. Business. Money. Even cooking. 

So what happens when two of the biggest baddest predators of the ocean square off? This has NOTHING whatsoever to do with SPACs, I’ll get to those below…but I thought this was super cool.

The Great White vs. The Orca, or Killer Whale

A study was done recently to see what would happen when these two mega competitors ran head to head.

Who do you think won? It was no contest, there was a clear, unmistakable winner in the battle. Or not.

So, the study’s researchers went to an area where Great Whites were feeding on seals and tagged several of the Great Whites.

Then, they popped some popcorn, cracked open some beers, and waited for the Killer Whales to arrive. The Killer Whales feed in the same area on the same seals. They just happen to show up for their meal a few months after the Great Whites.

When the Killer Whales arrived, playing the sharks vs. jets song from West Side story, it was mano-a mano. Or, sharko-a-sharko.

At least that’s what you would think right? Some big mean Killer Whales rolling up on some big mean Great Whites.

But, the Great Whites, on the arrival of the Killer Whales, said, “ah, we’re good”, and left. Not to be seen until the following year, when it was their turn to feed again without the Killer Whales. 

So, clear winner, Killer Whales. Or…

The Great Whites, thinking “we’ve had some good eats, and now we could hang around here and fight to a bloody mess, or move on to something easy…” did just that. They defaulted to “easy”. Sounds like a win to me.

Warrants, especially some SPAC warrants, like Great Whites fighting Killer Whales, can be super messy, and complicated, and difficult, and just plain hard.

But, just like the Great White, you can choose to take on those hard trades. Or, just move on to easy. 

A great example of that easy trade, so far, has been Forum Merger II, FMCI/W. This was a very hot deal when it was announced, but it followed the same pattern as almost every other SPAC warrant we’ve seen.

A pop, a drop, and then a move higher into the merger close.

Patience put us in the warrant between $3 and $4 (not $6, before it fell back to $3). And, it just so happened the common had call options we could short against common stock (and warrants), which had also traded lower. 

It’s been a no muss, no fuss trade the past month (and continues to be), already with returns that put a year of “normal” stock market returns to shame. I’m with the Great White, I prefer easy.

NOW, some possible Shark/SPACfolio plays.

Since we’re doing Great Whites today, we’ve got to do…

Jaws Acquisition Corp. JWS/WS

As I said earlier in the week, I’m not a big fan of getting into the warrants early. I like to give them a few months at least, preferably 6 or so, of trading before adding to a SPACfolio.

But, some SPACs have very quickly chosen targets recently. And, as long as the warrant has come down from it’s IPO price, I’m not opposed to adding earlier.

Jaws has already traded in the $3.25 to $3.50 range a few times, and has now dropped to $1.80…and could have been bought at $1.60 the past few days. (Please note, when this email originally went out, the warrant was in the $1.60 – $1.80 range, but in the past week has jumped to $2.50. If I didn’t own it, I’d wait for it to move back under $2 before picking any up.)

Jaws is run by Barry Sternlicht, of Starwood Capital, which if you don’t know from Wall Street you would know from staying at a Starwood Hotel…several of the W’s in NY are my favorites.

Mr. Sternlicht is good at, shall we say, making money. The SPAC is targeting ANY industry it wants, but won’t compete directly with a Starwood Capital property. So staying away from hotels, real estate and energy that directly compete. 

I would LOVE to be able to get into this one at a lower price, as always, but I don’t see Sternlicht announcing a deal that doesn’t make a splash. (Get it, “splash”?…sharks?…you get it.)

Diving into our next one…ahem…and since we’re already in a travel and leisure mindset…

Experience Investment Corp. EXPC/W

I think there are two ways to look at EXPC/W, which was announced as a SPAC looking at the travel and leisure business.

One, why in the world would you want to put money into a travel focused SPAC right now? Haven’t you heard travel is dead, and will take years and years to recover?

Or, two, the game board has been reset. Travel and leisure are NOT at all what they were 6 months ago. It’s a brand new world, and a brand new opportunity. 

Since people still want “leisure”, and are paying handsomely for it, (see Dick’s Sporting Goods DKS numbers today), what’s wrong with having a bucket of money to invest right at the beginning of the NEW TREND in leisure. 

Maybe camping, see Camping World’s stock, CWH, even with the recent pullback. Or maybe something like a Polaris (PII)? Maybe they could buy an EV leisure vehicle company…an EV company that makes RVs?

The team at EXPC/W has experience in a fairly wide range of travel and leisure activities, and should be able to leap from the idea of purchasing a hotel chain, maybe not a bad idea 6 months ago, to something more appropriate now. 

Maybe they could get us an EV (bigger) boat! ​​​

The Warrant Observer

If you missed the first two days of SPACfolio/Shark Week, you can find them here, Day 1, Day 2.