This is a copy of an email sent to my subscribers on 9/17/19.
Sports were a big part of my growing up, and have played a big part in both of my kid’s lives as well. Tennis, my son’s sport, played a large role in his college decision process. And, my daughter plays on two soccer teams and a basketball team.
I’ve had the privilege to coach and assistant coach both soccer and basketball. A great way to bond with your kid BTW, and a lot of fun.
As athletes mature in their sport, their grasp of the strategy of the game broadens, and at some point, for the hyper-competitive area I live in it was around 7th grade, a parent, or paid coach begins taping the games.
Obviously, in professional sports, this is standard practice. You often hear that the top quarterback or pitcher is so good because they spend so much time in the film room.
They’re studying both themselves and their opponents. They’re looking for ways to improve their own form, and studying the tendencies, or patterns, of their opponents.
If you know what your opponent is going to do in a given situation, as an athlete you can take advantage of this. If you know they play run defense 80% of the time on 2nd and 5, then you pass.
If the batter is looking for a fastball 80% of the time on 2-2 counts with runners in scoring position, you throw the slider.
Your opponent’s pattern, or tendencies, often dictate what you will do in order to take advantage of the pattern you’ve identified.
It doesn’t always work, but athletes at the top of their game know that it is very difficult for their opponents to change the patterns they fall into.
It’s the same with stocks, warrants, and options. Once you identify a pattern, you should take advantage of it to both win AND avoid losses in your portfolio.
Virgin Galactic Warrants in Play
Almost a month ago to the day I published an article about the merger of Virgin Galactic with the SPAC, Social Capital Hedosophia Holdings (IPOA, IPOAWS).
I love Virgin Galactic, think the deal is a home run, and know that Richard Branson will find ways to monetize not only space flight but everything about the “experience”, as the company talks about in their investor presentation. In the parlance of Wall Street, I rate the warrants a BUY.
But, in the world of warrants, where I play as a professional, I’ve watched a LOT of “game film.” That means I know the warrant pattern when a SPAC announces an acquisition.
I’ve written about it often, but if you haven’t seen it yet, it’s spike up on the announcement, drift lower after the announcement, and then run higher into the shareholder meeting to vote on the acquisition.
It’s not magic, or guru-ness, or intelligence (believe me, it’s not intelligence). It’s just putting in the reps and learning the patterns, or tendencies, from watching the tape.
It’s why I suggested you not buy the warrants a month ago on the announcement, even though I love the deal. And why, unsurprisingly to all of us, because we know the pattern, the warrants dropped 35% in the weeks following the announcement.
Now that we’ve used our pattern to not lose money (arguably more, if not at least as, important as knowing how to make money in the market) let’s revisit the warrant and see where we do want to buy.
An investor presentation today (9/17) has sent the warrants higher from the mid-$1.50s. But, after this mini-excitement, I would again expect the warrants to drift back down into the $1.60-1.50 range before the shareholder meeting.
From the latest SEC filing, it appears to be clear sailing for the acquisition vote, but we don’t yet know the exact date.
The company did arrange for an extension of the time in which it must complete the acquisition vote to mid-December. So, we can expect something before that date.
At this point, for aggressive purchases I won’t go above $1.80, and will scale into any position I take in the warrant if it comes closer to the $1.60 level.
Additional Warrants of Note
Another warrant I’m keeping a close eye on, using the same pattern, is Mosaic Acquisition (MOSC, MOSCW).
The warrants have moved higher on an acquisition announcement, and I’ll be looking for a pullback, and then for any news on opposition to the acquisition from shareholders.
Finally, one more that I’m watching now on acquisition news is Gordon Pointe Acquisition (GPAQ, GPAQW). This one is unusual because it is NOT following the classic pattern of spiking on the acquisition announcement.
I find this especially interesting because they have a good “story” behind the merger, in that they will be running the Pro Football Hall of Fame and a resort associated with the Hall of Fame.
And, usually the spike is more on the story then the actual business fundamentals. For now just keeping this one on the radar.