I Don’t Think That Works
“But, if you’re telling me this, and, if you know this…I assume other people know this. Eventually it won’t work, because everyone will be doing it. So I don’t think that works.”
I was talking to a colleague (hi Jeff!!) a few years ago, explaining a pattern I have traded over and over in warrants.
Jeff found it very hard to believe a specific trade could continue to work over time. Because, eventually, everyone would “know”.
The Beach Ball Trade
I was explaining the apparently STILL unknown, and what I have named, the Beach Ball trade.
I thought of Jeff last week, as the warrants were redeemed, and I was buying several hundred Vertiv (VRT) calls, and then selling them a few days later for 50-150% gains. (Don’t worry, Jeff is a first class consultant and does very well…he doesn’t really need these trades.)
I’m 99.9% sure that me, and my little group at the Warrant Observer, were literally the only ones buying these calls.
Let’s put it this way. Before we started buying, the volume in each strike was between zero and six contracts.
I’ve written about the Beach Ball trade several times on this blog. And, the point of this article isn’t to go over the trade once again.
Apparently you and I are the only ones that read this anyhow.
The point is to let you, as my only reader, know that the trade is alive and well. And, more importantly, becoming more prevalent.
A RECORD Month for Beach Balls
Did you know that 25 years ago, I would be psyched to do one Beach Ball trade a year? And, just between you and me, when I could do them, they could often make my entire year.
Really, I’m not kidding. I could do one Beach Ball trade a year and have what most would consider an unachievable return.
So, you can imagine my delight (probably too weak of a word…more like the feeling when the Disney guys ask you what you’re doing after the Super Bowl) when I realized there were going to be no less than THREE Beach Ball trades in ONE MONTH???
I mean, C’MON man, THREE Super Bowls and THREE trips to Disney in a single month. And I’m not talking masked up, temperature check as you walk through the gates, trips…I’m talking pre-pandemic, no mask, fastpass…heck, maybe they open the park JUST for you kind of trips.
Oh, before I forget, the other two Beach Ball trades that popped out of the water this month were in Utz (UTZ) and Vivint Smart Homes (VVNT).
But, why, after 25 years, do Beach Balls keep popping right on cue?
A Very UN-Sexy Trade
Who knows, maybe they won’t after you, and my other readers (my wife…my dog??), read this and start trading the Beach Ball.
I do have a couple of guesses why it keeps working though. One, it’s SUPER, NOT sexy.
I mean, while you were probably making a fortune trading electric vehicle and battery stocks…companies that are going to save the world, turn everything green, and make sure my favorite fishing spot stays pristine…I was over here trading chips.
No, not those kinds of chips, the crunchy sour cream and onion kind.
Layer on top of that, home security systems (VVNT) and racks (VRT) (fancy shelves) that you store computer gear on, and you’ve got a bad beer commercial.
Scene: Guy watching football in his underwear. “Hey, Vivint Smart Home please have some chips delivered.” Robot delivers a computer chip. “NO! Not the ones from the fancy shelves, the crunchy kind, the Utz ones…c’mon robot!”
Not sexy…and not going to get that commercial writing job any time soon.
It Takes (a little) Energy and Time
Two. The Beach Ball trade takes a teeny, tiny bit of work. And, maybe, a teeny tiny bit of willingness to suspend belief.
The evidence I have is extremely clear and overwhelming, and based purely on the scientific data. (OK, it’s purely anecdotal, but maybe someone will listen if I invoke the Thomas Dolby, who apparently was WAY ahead of his time, buzzword of the year “Science.”)
Allow me to present my evidence. Well, one piece I’ve already presented above.
Remember my friend Jeff. I told him, here’s the trade, here’s how it works. AND it works the vast majority of the time. AND, if it doesn’t work, you almost always can just get out flat, or lose a tiny bit of money.
He scoffed, but nicely.
And, as I said before, I’ve written about the Beach Ball here on this blog. Where, literally, ones of ones of people come every day.
And yet, in the three Beach Balls this month…crickets. (As I said, other than my stalwart Warrant Observer members who I emailed beforehand about these trades…no one showed up to the party.)
So, I tell my friends, and scream from the blog-tops, and nothing. I can’t get people to do the trade, much less OVER do it.
Here is piece of evidence for number two.
Make Them Pay for It, and They Will Use It…Or, Not
Do you know in marketing how they tell you to always charge for stuff because, if the buyer does not perceive the value they won’t use the information? Well, trust me, that’s what they tell you in marketing.
If I gave you the exact piece of information for free, versus charging you $10,000 for it…it is magnitudes of time and space more likely (as in a LOT more likely) you will actually do something with the information if you paid $10,000 for it.
So, I sell a course on warrants that goes into excruciating detail (the number one complaint I get about my course…it’s dense and too detailed…I’m not kidding) on the Beach Ball trade. How to do it, when to do it, etc. etc. etc.
This month was the best month for Beach Ball trades in the history of Beach Ball trades.
Coinciding with this record month, a fine upstanding and courteous young man purchased my warrant course. He paid the extravagant price of $10,000…oh wait, I haven’t raised that price yet…the extravagant price of $97.
Aaron (as I’ll call him) went through the course, and then wrote me this, again, very courteous and nice email, asking for a refund:
However, unfortunately, I am discovering that it includes information that I really don’t have any intention of ever using. It would take me more energy and time to understand (and more money to implement) than I will ever be able to muster. I guess I was looking into SPACS a couple of days ago and had read somewhere about early expiration of warrants and thought I needed more information…
Very Courteous Aaron
On one hand I feel very sad for Courteous Aaron. When he doesn’t have the energy and time to get to a 50-150% return in a few days. I mean, Aaron, my man, what are you spending your energy and time doing? (Trading those EV stocks for 200-300% returns mabe?)
But, on the other hand, as a trader, whose sole job it is to make money…it did bring a small tear to my eye to see those VRT (and VVNT, and UTZ) calls, sitting there like Wagyu Tenderloin, because traders like Aaron just didn’t have the energy and time.
So, the second piece of evidence that the Beach Balls keep popping…I can’t even CHARGE people to tell them how to do this trade!! The marketers are WRONG…or maybe I need to increase the price of the course to $10,000.
I do have to admit, in my cold-blooded trader’s heart…in some ways I see it as giving Courteous Aaron his $97 back, and me making fat stacks of cash on him spending energy and time elsewhere.
Maybe there’s an arb there…I pay people $97 to stay away from the trade, while I take the 50-150% returns??
But, alas, that doesn’t seem to be necessary…yet.
The State of the Beach Ball
Bottom line on the Beach Ball trade.
Does it work 25 years after I first learned about it? Yes.
Is it easy to do? Yes
Is it low risk? Yes
Is it sexy? No
Would I be happy with 50-150% (or sometimes a little more, sometimes a little less) in 2-3 days? For me, H double hockey sticks, YES. (But for you…I’m not an investment advisor and can’t give you financial advice, maybe you should ask your financial advisor.)
Do I want to put the time and energy in to do it (sorry Courteous Aaron, couldn’t resist)? Yes.
Can I give the information away for free and it kills the trade? I’ve been trying, but not yet.
Can I charge for the information and it kills the trade? Again, not yet, but I’ll keep trying.
So, there you have it. January was a record month for Beach Balls popping out of the water.
OH, and did I mention that pretty much every SPAC has warrants that could eventually turn into a Beach Ball trade…thinking about getting a condo at Disney.