The term "sloppy seconds" doesn't come with the greatest of connotations, however, in trading it might be your golden ticket in certain market environments.
When markets get hot and individual sectors or stocks begin to put in moves that measure in the stratosphere, traders, especially momentum traders will begin to search out correlated, ancillary, or competitor plays. These are names never first in line, but in a pinch, they may do.
Recently, DraftKings (DKNG) has been on a tear. The stock closed last week at $29. This morning it hit $39. At the beginning of April it was $12. After running roughly 35% over the past three days, folks starting looking elsewhere. When I saw Esports Entertainment (GMBL) experience a price and volume spike to the $4.80 this morning, it caught my eye. Every bid was being hit. It stands to reason that folks who missed out on DKNG, were looking for sloppy seconds, others names with big upside, smaller floats, that live in a similar space. GMBL, and to an extent, GAN (GAN) , fit that mold.
Within a few hours, GMBL tacked on 20% to the upside as traders moved into the next possible big thing.
Everyone knows Tesla (TSLA) . Love it or hate it, you know it, and you know the stock has performed incredibly well, fundamentals be damned. For years there have been ancillary plays on Tesla. Last year, NIO (NIO) came on the scene and worked as a trade. Recently, the sloppy second has translated to VectoIQ (VTIQ) , the shell company merging with Nikola. Besides sharing the namesake of Nikola Tesla, these two companies will compete in the tractor-trailer segment of the EV market. Those comparisons have been enough to double VectoIQ in the month of May.
We can now take that one step deeper to include CNH Industrial (CNHI) . CNHI has a $250 million stake in Nikola plus the two have teamed up in a joint venture to produce the Nikola TRE, the battery electric heavy duty truck. CNHI has a $8.65 billion market cap, so a $250 million ownership for Nikola won't amount to much although it's fair to estimate that a $250 million stake is worth closer to $750 million now. Don't be surprised though if you begin to see this stock move if Nikola's strength continues.
Staying with the Elon Musk theme could bring us to Virgin Galatic, ticker symbol, (SPCE) . The more attention we saw towards SpaceX, the more we heard of SPCE as a traded alternative to consider. The race to commercial space is in full force. I do worry some have SPCE confused with SpaceX, but no matter, it became a hot alternative and one that continues to offer plenty of trade opportunities.
We watched as PPE names Alpha Pro Tech (APT) and Lakeland Industries (LAKE) ran wild, eventually leading traders who didn't want to chase those names beginning to pile onto shares of Owens & Minor (OMI) . OMI never saw quite the move of the other two, but there were some decent trades to be had.
Cannabis. I don't even have to give an example. This entire sector is a chase of sloppy seconds, irksome third-somes, and forgotten fourths providing plenty of opportunities both on the long and the short side of the ledger.
For traders, it may be time for you to embrace the sloppy seconds on the TRADING and SCALPING side. Rarely is it a long-term investable thesis, but it can be a short-term profitable thesis both on the way up and the way down. If we weaken, these terrible twos will likely get hit much harder than the core, so keep your eyes open in both directions.