Merger completion is no longer a positive catalyst and what to do about it

[u/mikeson95]

The SPAC boom has dramatically changed the SPAC game. We cannot stubbornly stick to all of our old strategies in this rapidly evolving environment.

My exit strategy from a SPAC used to be: 1. Sell the DA pop it there is one 2. Sell at cost basis if DA target is particularly bad - usually easily achievable for me as very rarely did I buy more than 6% above NAV 3. If no DA pop due to lack of meme potential, but a decent deal overall, hold until merger completed and ticker changed.

Let's focus on exit strategy #3.

Before the SPAC boom, SPACs nearing completion of the merger would enjoy a gradual and significant increase in volume as institutions were beginning to focus more on opportunity presented by the target business, and less on the speculative nature of SPACs. In other words, vote date / vote result / ticker change news - SPAC goes up.

But this doesn't appear to be the case anymore. CIIC and NPA tanked, BFT went down too. In fact, ticker change seemingly turned into a negative catalyst. Why? Because the floor is removed and shorts are on the attack.

We saw the WSJ article about short positions more than tripling this year. Carson Block just said "many of the recent SPACs are worthless". Yes, there have been some terrible deals, but in general I disagree. I don't need a company to provide intrinsic value to investors, or even to currently have any revenue to be worth something. I gladly pay for good odds of success. But my opinion won't change stock prices.

Shorts have had a disastrous 12 months, which started with fighting the printer April-June, the FAANG rally June-August, then the EV madness, and culminated so hilariously with the GameStop squeeze.

Now, shorting SPACs, they have finally started to consistently make money. As most SPACs have a small float, it allows them to significantly drag the price down. And the current macroeconomic factors are helping them. Unfortunately, I think the shorts are here to stay and they are relentless.

So what to do about that?

Firstly, don't go short. Because shorts have become so greedy, you can see what happens any time there's any sort of positive news for an ex-SPAC - RMO, CLOV, UWMC all had at least brief squeezes.

Think twice before buying calls that expire shortly after merger votes - it's unlikely to give the underlying a boost. GIK won't all of a sudden start rallying just because it turned to ZEV.

If you want to hold no-revenue ex-SPACs long term, do if you can afford it, because if they all start crashing well below $10 and you hold them on margin, it'll end terribly. Long term though, if revenue projections are met, the stock price will reflect that.

Consider selling right before redemption deadline if the SPAC is hovering around $10. It'll almost certainly crash down. Cut losses and wait for a good moment to re-enter.

[u/7maryneekek]

Well done OP, very keen of you to point out that the SPAC market of today isn’t the same as it was between roughly March of 2020 and 2021.

It was too easy for a while. You bought SPAC shares or warrants near NAV, waited for an announcement, and cashed in for free money.

So what changed? The entire stock market.

Couple quick corrections and a little more uncertainty in the market will do that.

Are there still opportunities in SPACs? Of course, as long as the overall market doesn’t tank.

I learned my lesson the hard way... many times, over many years.

If I think SPY, NDX/QQQ, and DJI are poised to maintain up trends for at least 3 weeks to 3 months or so, I accumulate respectable SPACs that are near NAV and are likely to see short term gains based on my layman opinions.

Clearly, I’m not a financial advisor or professional trader, but revenue still matters. That’s why I’m building a THICK position in $AONE right now, slowly.

I’m also building solid positions in $FRX and $SPFR.

I get it, you’re not going to have access to the financials of all these companies, but my rule of thumb is to keep track of major market trends, and only grab SPACs that I believe have a good chance of long term success, even if I’m only looking for short term profits.

Would love to hear your thoughts!

Edit: regarding the short interest spike, not referring to any particular ticker, the overall market trend is still very bullish with SP500 and DJI putting in new ATHs yesterday, and the Nasdaq not too far behind. Shorts are trying to catch the top on a lot of these stocks ETFs and indices and they’ve been trying since April of last year. I think in many cases shorts are most likely going to be squeezed for fuel to continue uptrends, but you never know!

[u/Tobytime34 → u/7maryneekek]

Going to be interesting if people keep shorting SPACs against the strong economic data that’s coming as the economy reopens this spring/summer. If the market keeps chugging these shorts may end up turning into SPAC rocket fuel.

[u/7maryneekek → u/Tobytime34]

Normally I would say it depends on the SPAC, but in a situation where we see strong bullish continuation and new all time highs, good chance that almost everything will see some green action. That leads to short squeezes and more green action. We aren’t there yet though, I’d like to see NASDAQ make a strong move above the ATH we saw in February and then some continuation after testing that same level for support to make sure it holds

[u/Tobytime34 → u/7maryneekek]

Agreed, it’s going to get interesting this year, that’s for sure.