Sometimes the best-laid plans go astray. Sometimes we just miss them.
As the IPO market comes back hot, I'm noticing some cooling in the Special Purpose Acquisition Company (SPAC) reaction to new merger announcements. Many still receive a small pop if they enter a hot industry but gone are the days of the 30% to 50% quick move on virtually any announcement. The electric vehicle space is still getting some love, but I was surprised to see the somewhat muted reaction of dMY Technology (DMYT) buying Rush Street Interactive as the online gambling, gaming, and sports sector has remained hot.
There are still plenty of folks looking for the next Nikola (NKLA) style squeeze. I'd argue the recent run in Tortoise Acquisition/Hyliion (SHLL) resembled it even if the stock paused at $40. I'm not sure the run is done either, but it gives us a good comparison. Outside of being competitors, one thing in common these two names have is the availability of options. I believe that is key to the biggest moves we've seen from SPACs.
Once options become available, the out-of-the-money call action heats up. In some cases, it is speculators while in other cases it may be folks playing arbitrage possibly against warrants. The problem it creates is one of a squeeze because the warrants won't move dollar for dollar and slow down their "delta" in the short-term on a huge stock run. It evolves into a situation where the short call gets exercised and overnight borrows aren't available. Without the ability to exercise the warrant early, the end result is forced buying and a squeeze.
One name that fits this mold is Insurance Acquisition Corp (INSU) . The company is buying Shift, which owns an automotive e-commerce platform where customers can buy, sell, and finance vehicles. It also offers on-demand test drives without visiting a physical place of business. It does target more densely populated urban markets, but if you've paid attention to how well names like Carvana (CVNA) have performed, you can see the potential here.
Options began trading recently on this name and today the stock is breaking out to the upside. This has a very similar feel to Nikola and Tortoise Acquisition/Hyliion. If you're looking for something in this overextended market that could work outside of the bigger influences over the next few weeks, INSU could be it.
Unfortunately, as I've seen in Immatics (IMTX) , not every upside expectation happens when you think it will happen. I continue to hold the name because nothing has fundamentally changed to cause me to sell. While I knew it could be a wait as many biotech are, I didn't foresee quite the weakness and selling we've seen in the name. I do continue to hold, but I'm not adding until I see progress on the science and business side of the ledger.
