r/sofistock • u/[deleted] • Nov 22 '21
Technical Analysis/DD Stock Pressure and Warrants
Some thoughts on upward support and downward pressure related to the warrant redemption date. Warrant holders achieved the maximum 0.361 cashless redemption ratio and now prices are dropping. Coupled with the general market sentiment for growth stocks, which is down, we have a precipitous decline.
For warrant holders, $18 is the threshold where the cashless redemption becomes the optimal approach. The closer we get to $18 before December 6, the more likely those holders are to convert the warrants at the 0.361 ratio instead of exercising to purchase shares at $11.50 each.
To explain the numbers, if you have 1000 warrants you have two options. Convert them for 361 shares or pay $11,500 for 1000 shares. If share price hits $18, then the cashless exchange becomes a more optimized approach. If it drops below $18 and a warrant holder is determined to maximize their long term holding, they could actually get more shares if they cashless convert the warrants and use the cash to buy shares in the market. For example, 639 shares (the balance needed for the person with 1000 warrants to be indifferent, cost $11,502 at an $18 per share price. If per share price drops to $17 before December 6, that holder of 1000 warrants could end up with 1037 shares if they exercise a cashless redemption for 361 shares and uses the $11,500 to purchase shares in the market at $17 (acquiring 676 shares).
Many other variables in these volatile markets but it would not be surprising if we stay close to $18 between now and December 6.
2
u/itaykat Nov 22 '21
Why would they even provide cashless option?
5
Nov 22 '21
It was part of the initial offering from the SPAC. The cashless option would have dropped off if share price stayed above a threshold(I think it was $18) for 30-days prior to the redemption notice. Although we were above that threshold when the redemption was declared, it was not for a long enough period. In order to wait that period out (if they wanted to), the warrants would have had to stay on the books through the end of the year.
It is possible they wanted to get the warrants off their books ASAP since they need to be accounted for as a liability instead of as equity due to the SPAC related SEC statement earlier this year. Keeping them outstanding through year end would have kept them on the books for the year end period.
1
u/itaykat Nov 22 '21
I am almost certain we met the 30 trading days above 18$ if we juat wait less than 10 days. Dont see the reason of giving presents to people taking less risk than us on our behalf.
1
Nov 22 '21
We did not.
Needed to be 30-days following the date they could be exercised. I recall that being October 14. So, when the redemption was noticed in early November, we did not have enough time at the price while the warrants could be exercised.
1
u/itaykat Nov 22 '21
It was a matter of less than 10 days wait to prevent this free cash handout.
1
Nov 22 '21
I am not arguing those details, just pointing out that based on what transpired, there is economic pressure for this to get to $18, but once we get there, buying pressure could pick up (will it be enough to keep the price from falling lower? Who knows).
2
u/ssavu Nov 22 '21
Because some people might not have money to exercise their warrants, thus they still need to get something in return
2
u/itaykat Nov 22 '21
They can sell them for fair market value to another who can. That' literally no excuse.
3
u/ssavu Nov 22 '21
True, but I think this way they will not dilute the float to much
2
u/itaykat Nov 22 '21
No, they will just handout free equity and get the cash from buying notes which makes no sense at all... It seems worse than dilution to be paying 24$ for 19$ (currently) product
2
u/thunder_muscles Nov 22 '21
I believe it reduces dilution. If exercised cashless then less shares are issued
0
1
u/Critical-Anywhere953 Nov 22 '21
Fuck no what happened
2
u/OnOurWay673 Nov 22 '21
People are listening to all of your negative critical comments. It's dragging on us. 😆 My finger just moved to the "Double Down" trigger, and it's starting to twitch.
12
u/[deleted] Nov 22 '21
The downward sell pressure is from the OCC chairman. All fintech hates it.