This morning is a struggle between digesting the drop from the past few days. Can we find a bottom or is this the pauses that refreshes the sellers?
It's a strange question to hear given how long we've lived in a one-sided market where the only pauses refreshed bulls. The long-term bias of the market is higher, but we sometimes forget the short-term cuts both ways. If I had my preference, we'd stay range bound for most of the day with a bit of a push higher into the close, but nothing overly dramatic.
That would set us up with a clear location for stops or bearish follow through trades while allowing upside of 1% to 1.5% before we breakout again.
I see lots of folks doing dip buying. My "buying" has amounted to rolling down some long legs in my call combinations and completely closing any legs that are far out-of-the-money and priced at $0.15 or less. There may be some opportunities on a bounce to reenter those legs or make a different adjustment to the positions. Much of what I have left now are calls essentially at intrinsic.
Given many of my trades were around SPACs, I am obviously down in those. I believe we'll see a bounce in that group again. I don't think they are dead. Maimed? Yes, but I don't think momentum players will simply abandon them for the rest of 2021.
That being said, I have added a few names that I see as a great risk-reward because of the limited downside. Several SPACs, both pre-deal and pre-merger close, are trading at or near $10. That provides for minimal, if any, downside risk. I've used this strategy multiple times in 2021 coming away well ahead almost every time. Get a deal and you probably get a pop. No deal and you redeem around $10.
I'm willing to pay a premium for the Soaring Eagle Acquisition Corp Units (SRNGU). These units entitle a holder to one share and one-fifth of a warrant to buy shares at $11.50. The small warrant value isn't as enticing as some, but these guys landed both DraftKings (DKNG) and Skillz (SKLZ) in previous SPACs. That's a pretty big two-for-two. It may take some time for them to find their next deal given these units recently debuted on the markets, but this is my biggest holding currently. I have a buy-and-hold position as part of my trading portfolio plus I'm using a portion of what I usually reserve for cash in the units.
Continuing the cash replacement approach, I picked up some Dune Acquisition Corp (DUNE) right at the $10 level. This SPAC is focusing on an acquisition in the Software-as-a-Service (SaaS) industry. Those have been fairly well received in the market. This does have a background in SaaS via GTY Technologies (GTYH) . Again, this is younger at only 2+ months on the market but the price is hard to pass on here. I view the upside as $12 to $14 on a deal and the downside as flat. Yes, that's a bit more muted, but still respectable.
I'll likely to dig through more this weekend. My preference right now is to buy pre-deals. There are a few sitting close to the $10 level that has deals in place, but I need to look closer at the deals. I see far more in the $10.50 to $12 range that have deals I like long-term, so I'm more likely to add there if I make any moves on post deal companies.
