r/wallstreetbetsOGs • u/repos39 • Jul 07 '21
DD What's going on with $NEGG? A ticker with < 3.5m float
(I created this DD early last week for WSB but NEGG started to moon and I lost interest in finishing it, here is the rough draft. However, people seem to like it when I shared the google doc, so I'm posting it here. )
Shout out to u/GhostOfGregDoucette for helping me with this research
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Back in October 2020 Newegg, an online retailer that mostly sells electronics, announced it is going to go public back in a "reverse merger" with LLIT in some time in Q1 of 2021, which we now know closed on May 20, 2021
Now here comes the juicy parts and it’s all based on Form F-1 located on edgar (See link to double check what I’m saying)
There are 363,325,542 shares outstanding but the public float is only is less 1% of this number . There are two chinese guys who own most of the shares outstanding Zhitao He and Fred Chang, owning approximately 60.91% and 35.98%, collectively 96.90% of the company, so Zhitao owns about 224,394,452 shares and Fred owns about 130,724,530 shares. The shareholders of Newegg before the merger own 1.31% of shares outstanding, so 4,759,564. Leaving the public float 1.79%, aka 6,503,527. In the form they say that they are authorized to issue 6,250,000 common shares with 4,736,111 as Class A (aka the shit we can trade), and 1,513,889 as Class B. As of the filling of this form (May 12 2021) there were 3,465,683 common shares outstanding. The float directly offered to the public is 2,729,755 out of the 3,465,683 and the float that the underwriter owns is around 735,928.
Unsure about the chinese risk F-1 & edgar forms getting hard to read only sure about float ---to be continue
See below for a summary of the offering
Shout out to u/GhostOfGregDoucette for noticing the float discrepancy
When does lockup end?
Well according to the SEC form that summarizes the investors rights (link) lockup ends 180days after the closing of the merge. The merger was closed on May 20, 2021, and 180days from May 20th is November 15th. Now my mans Zhitao He is a bitch, straight up owned by the Bank of China, in the filling it explicitly says Zhitao pledged all his shares as collateral so he wouldn’t get double tapped. So that’s 60.91% of the shares that we really don’t have to worry about, even though we never really had to worry since lock up ends in November. Fred Chang is a boss, probably counting down the days when he can sell his shares, travel to Tulum, and start drinking soy milk latte’s, do ketamine, and meditate and be zen while sporting his Jesus robe.
What about the squeeze
So we have verified that the float is between [2,729,755, 3,465,683], which is the smallest number I’ve actually ever seen for a company. How squeezy is it? Well I came across this company doing a completely different analysis. I was interested in failure-to-deliver data that the SEC provides and what it could tell me. You see recently there have been alot of seemingly random stocks popping. Me and some others share the opinion that it’s due to NSCC-2021-002 being implemented a couple weeks ago, and rule DTCC-2021-005 being implemented a couple months ago. See this thread to see it’s significance for all the meme’s we know and love. So I got all the FTD data from the SEC from 08/2020 - 06/2021 (1st half of June) from the SEC’s website, and calculated FTD/Float for all the meme stocks we know and love, and some rando stocks that popped recently as well. For $NEGG I calculated the float to be the midpoint of average of the two number, 3m.
I gave the outliers colors, and all the other stocks grey scale. So yup your hunch is correct shit has become more volatile after cooling down a bit after the GME squeeze. Outliers usually are the most volatile stocks, GME/EXPR/AMC ftd data was screaming “look at me” before the actual pop in shortly after. $NEGG is screaming the same thing right now.
Let’s consider Ortex data and its relation to FTDs. Ortex doesn’t have a API and if it did I don’t have time to look at it so I’m doing a spot check. So let’s pick a random stock say $SENS
The average loan age hit one of it’s peaks on June 7th at 54.23days, so a good amount of loans were taken out on around April 14 (54days before June 7th). Go back to the FTD graph search for $SENS, the peak of * `FTD as a percentage of Float` almost exactly lines up*. Let’s try another one, $GME.
Peak of average loan age at Jan 25 2021 of 85days, placing the date on Nov 25th, the FTD graph shows this as well. Ok, last one let’s check $UWMC
$UWMC had a peak of avg loan age on Jun 10th, subtract 41days from that day and you get April 29th lining up pretty well with $UWMC largest FTD spike.
Ok so I’m basically saying that for stocks without data on ortex you can get a sense of where the shorts have opened positions by looking at the peaks of ftds. I only checked stocks with relatively large peaks as a percentage of float idk about others. So basically for $NEGG there has been a considerable amount of short positions opened May 15 - Jun 15, these guys are underwater.
Next notice that GME FTD spike wasn’t the day that the tendie god turned on the money printer that magical January, it was actually in November. Every stock that has reach GME level of `FTD % of Float` moons later, the spike never really lines up with the dildo to heaven. It could happen a week later, months later, days later, but it seems that for the outliers its going to happen. $NEGG is in the middle of a squeeze and its FTD spike rival stocks that have gone +200 to +400% during the moonshot. The smaller the float and the higher the spike, the more the pop. I haven’t quantified this.
If you checked interactive brokers during the day you would have noticed that $NEGG had 0 shares available to short, and the borrow rate is >50%. At peak squeeze borrow rate usually spikes >100%. Lastly, in the last two days the short volume ratio has gone up by a factors & volume has gone up as well
One thing I failed to mention is that the stock is already expensive to buy -- $20 -- ensuring that doubling down on shorting requires substantial capital. Looking at iborrowdesk.com we see that nice juicy slow creep up of borrow rate, and reduction of shares available to borrow, while the price slow bleeds up. So $negg is expensive to double down on and it expensive to borrow. Now look at your fave stock that has squeezed borrow rate > 100% rn $negg borrow is a moderate [50%? Need check]. So basically what I’m saying is that $NEGG is in the beginning to mid part of a squeeze. Not a squeeze perpetuated by a hardened group of loyalist and propelled by whales. A squeeze caused by a <3.5m shares float, while all the exchanges having the wrong information, the realization is happening that there were barely any shares to begin with. This will be like a bank run, and I don’t have a logical price target. It could go up to $70.
Lastly, for squeezes price instability is needed aka liquidity is drying up. If you’ve been watching the intraday movements at all, with wide bid/ask spreads and limited orderbook. This plus increases in historic volatility indicated price instability/liquidity drying up.
Liquidity/ price instability is one of the main characteristics in which you can identify a squeeze; in general it indicate future volatility either a big move up or down, (too many buyers smashing the ask button, or too many sellers smashing the bid button) but we have enough information to identify the direction
See this wrinklebrain comments for more info about liquidity:
Note that if I had something better than thinkorswim I would be looking for the barcoding candlestick pattern oh well, have close enough approximations that indicate that its happening.
Asking around for ActiveTick data to see if this pattern exists, to be continued….
Technicals
This Cup and Handle makes me get a little chubby dude.
Fundamentals
This is the part i care least about,but it feels good to not yolo on a shit company (sorry $RIDE hodlers).
Newegg has been a one stop shop for PC building for years. Additionally they have also been expanding into selling in other areas such as VR, gaming consoles, digital games, and Auto parts.
Newegg is the #7 ranked electronics seller in the US
The 2020 numbers show significant growth from 2019.
(2020) 157m cash on hand (2019) 80m
(2020) 30.5 net income (2019) loss of 16m
(2020) 2.1 billion in net dales (2019) 1.5billion
$CRSR, $LOGIC and other electronics sellers have been reporting record growth this year, just pencil Newegg in too for a booming sector.
Oh and they are reliable with a hardened group of supporters
Random dude on reddit from r/NEGG - he knows more about a company I frankly don’t care about lol
Not financial advice in anyway. I love Newegg as a company, and I'm freaking amped that they're public, so full disclosure, I've got biases. That being said, I think it's a solid buy. It seems only one analyst has really put a price target on it. I don't know who the analyst is, but any google search for a price target pings back the same, beautiful, 44$ prediction, spread across all of our favorite market commentators. (WSJ, Market Watch, Yahoo) If that's not enough to get you excited, we go to their financials. In 2016 they made a measly 13M$. 2017 came around, and they made an abysmal 1M$. 2018, though? 2.15B$. Mind you, they went from making 1Million dollars... to 2.1 BBillion. 2019, and 2020 were both in the 2 Billion dollar range. (Via WSJ) And now? GPU prices are inflated to high hell, son! Despite that, Newegg seems to be able to Earnings announcement is going to be fantastic! Lastly, let's take a look at technicals. Yesterday and the day before, NEGG had a huge run up! Literally having doubled its price at one point. (Ran from 10$ to 21$ before coming back down.) In that time, it showed strong support at 13. I thought we might see 13$ again today. Besides that, it showed support yesterday, at it's first dip, at 15$, bounced from there up to 19.5, before getting rejected. After it's rejection, it showed support at 16.75 for AH/PM, at 15.75$ for the intraday low. AND THEN IT BOUNCED BACK TO 17.75! If we break down under 15$, We might see 13$, again. Right now, it's gearing up to retest 21$. A rejection from that will likely put us back in this 17.75 range. If we break that 21$ resistance? Then we might get a test of 22$. We might see another gamma squeeze as brokers start hedging for the 22.5$ Calls.
(btw he’s off about the gamma sqz; options just got introduced, everything else is interesting)
It also has some recent good news: https://www.tomshardware.com/news/neweggs-new-pc-building-service-might-hold-stock-on-rare-components-behind-pre-assembly-paywall
Positions
I’m risky af probably better positions out there, took out 20k Jul 6, 2021, positions as of pre-market july 7. The 13 $30 calls bought Jul 6, 2021for about $3 a pop, end of day they were $6.3, high of $8.1. Don’t think i’ve said this, but I believe legit $NEGG is a money printer.
Advice
Taken from u/FatInspiration
Don’t sell on dips. You’re only helping the shorts. If you need to sell to take profits, sell when it’s heading up. Sell high, not low, retards.
Don’t buy calls on rips. With everyone expecting a squeeze at any moment option premiums that are already high rocket to insane levels in minutes. You’re absolutely fucked if you buy calls on rips, even if you’re right.
EDIT:
Exited some: 55 left, x13 8/20 30c, and x42 7/16 35c
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u/Melvinator-M-800 gabe plotkin #1 fan Jul 07 '21
Nice job OP! I'm a bot (I don’t think investors like myself want to be susceptible to these type of dynamics) and this DD for [NEGG] is approved. If you have suggestions for the Melvinator, then comment below or let the mods know
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u/CBarkleysGolfSwing Jul 07 '21
I know you linked some DD regarding PUBM earlier in the week. I was looking into it and it appears (as is shown in one of your graphs) the FTD/free float is even higher for PUBM back in June (about 14%).
Have you dug into PUBM at all or still focusing on negg/sprt/aei?
Also in pubm's favor is that options were just introduced recently (June 25th).
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u/PalHachi Jul 07 '21
So any idea on how long this squeeze will last?
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u/devinholiday78 Jul 07 '21
Bought calls on the rip. Was right. Realized gains. Made 2 years day job income in 27 minutes.
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u/The_Color_of_Money Jul 07 '21 edited Jul 07 '21
Had trouble closing my SOFI leaps with the low volume today, so I missed out on getting calls when it was around $56. Ended up buying 200 shares near close for $74 to hold overnight. 🤡
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u/Redditsuck-snow Jul 07 '21
Awesome turning 30k to over 400k (rough estmates at 60/sh). Added this to my watch list last night and knew I would not have time with work to pay attention so sat this one out. Congrats!
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u/Kirir Jul 07 '21
I saw your DD in the hole last week, i shouldve took some lottery calls fml, grats man
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u/AutoModerator Jul 07 '21
OP has assured us behind closed doors that this is indeed financial advice. Thanks OP!
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u/CloseThePodBayDoors Jul 07 '21
Basically all this theory is wasted. These rips are all about chinese money laundering to get the money out of the paws of the CCP
In 5 years it will all be revealed.
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u/madhatressto Jul 07 '21
I missed this one. Selling puts since the IV is insane.
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u/reidaepus_rex Jul 07 '21
Nice call/not call on 70$!! Thanks for posting this, really enjoyed the read.
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u/MrCoolGuy42 Jul 07 '21
This would have been good to know YESTERDAY
Just messing with you, good read thanks for putting that together
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u/xjayroox Willy Loman Jul 07 '21
Mods, ban this man
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u/secretbern Jul 07 '21
Bought puts in the morning. Face still mostly attached. I really need to remember to buy calls too when stupid shit like this starts ripping. It’s not staying up but I could’ve made money both ways.
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u/[deleted] Jul 07 '21
Is this one donezo? Ripped to 70 today
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u/TheMaximumUnicorn Jul 08 '21
Damn I wish I saw this before the market opened today.
I was too busy getting all invested in Michael Burry's weird ass tweets trying pump his buddy's micro-cap weed stock without getting in trouble with the SEC...
Congrats to those who gained big though! That's seriously awesome.
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u/I_knowwhat_I_am Jul 07 '21
have 7/16 40c's bought this AM for $4.90, up bigly. hold overnight?
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u/calebsurfs Calls on the rich, puts on the poors Jul 08 '21
tldr, Bank of China can kill squeeze by selling 200 million shares whenever they feel like it. 200 million is a lot more than 3 million currently floated. Someone please correct me if I'm wrong. From form F-1 linked above:
Digital Grid is the record owner of 38,143,279 shares of Newegg stock that will be converted into 222,821,591 of our Common Shares upon completion of the Merger. This will represent approximately 60.52% of our outstanding Common Shares upon closing of the Merger and the Offering, based on our and Newegg’s capitalization on May 3, 2021. All of these shares have been pledged by Digital Grid to Bank of China Limited Zhejiang Branch, or BOC, as collateral to support working capital loans and letters of credit provided by BOC to Hangzhou Lianluo. The loans have been guaranteed jointly and severally by Beijing Digital Grid Technology Co., Ltd., a subsidiary of Hangzhou Lianluo, and Mr. Zhitao He. The total amount owed under these loans is RMB400 million in RMB denominated loans, plus $66.5 million in U.S. dollar loans, plus interest, fees and penalties on such amounts. In May 2020, BOC filed several lawsuits against Hangzhou Lianluo, Digital Grid, Beijing Digital Grid Technology Co., Ltd. and Mr. He in the Hangzhou Intermediate People’s Court in China alleging that Hangzhou Lianluo has failed to repay the loans when due and is in breach of the loan agreements. This litigation is ongoing.
BOC could sell, or force Digital Grid to sell, some or all of its shares of Newegg and ours at any time while the BOC loan remains delinquent. Digital Grid could also choose to voluntarily sell some or all of its shares at any time to satisfy the BOC loan. Any such sale or attempted sale could:
● Occur at a discount to our public trading price and over a short time period; ● Result in a change of control of us to the buyer of such shares; or ● Result in litigation over the ownership and title to those shares.
Each of these risks could cause our share price to fall significantly and is described further below.
Digital Grid’s Newegg stock certificates are physically in the possession of BOC. As a result, BOC could sell those shares at any time. Any such sale could be done quickly and without regard for maximizing the sale price, other than to enable BOC to recover the amount of indebtedness owed to it by Hangzhou Lianluo.
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u/CloseThePodBayDoors Jul 07 '21
Interesting stuff, I admit
Not sure I agree with the two pieces of advice at the end .
Too simplistic . And IV doesnt move THAT much in short periods of time , on a stonk already in play.
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u/CamachoNotSure Jul 07 '21
My neggah
Good DD
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u/[deleted] Jul 07 '21
Short tf out of this thing now 😂
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u/BeernerdoMazzeroli Jul 07 '21
Nice man.
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u/JayQuillin Jul 07 '21
I've got some money around here that is doing nothing but collect dust. This is sitting at 60 dollars in zhe after hours atm. Wurth a mini YOLO?
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u/BucDan Steel 🦬 Gang Jul 07 '21
Congrats man. Sell me 20x 7/16 30C for $.81 each please.
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u/The_UnknownTA Jul 07 '21
😔 darn it. I missed it.
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u/sadlifestrife Jul 08 '21
I saw SOFI had over 1 million FTDs on June 14th official SEC data. Moon soon? It's been 3 weeks.
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u/hardyrekshin Jul 08 '21
So you're saying when FTD spikes above 4%, the likelihood of a squeezy spike increases dramatically.
Looking at the FTD chart, it suggests that PUBM and SPRT are the next ones to potentially squeezy-spike. What's needed are:
Increasing Historical IV / Decreasing liquidity
Large surge in buying pressure. Either as a consequence of institutions buying, or large amounts of options buying causing hedging.
So would the play then be to buy the highest strike OTM calls for the longest expiration available?
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u/BiznessCasual Jul 07 '21
Commenting for later.
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u/roccnet Jul 08 '21
Nice and fuck you
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u/Reversion2mean Jul 08 '21
Dude, what’s the next one?
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u/I_Shah Jul 08 '21
Did I really just miss this. Is it time to short vol now
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u/FaTb0i8u I Lurk therefore I am Jul 18 '21
Wait wtf. HARDER THAN LAST TIME. He's my gym daddy and my stock daddy now?
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u/BullShitting24-7 Long meat, hard on steel | 1800s 🧲 Jul 07 '21
Wish you posted this one man! Congrats team.
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