It looks like Richard Branson is coming back for round two of the Virgin Galactic Holdings SPCE "ATM. "
On May 11, news hit the wires that Virgin Group (Vieco 10) would sell up to 25 million shares of SPCE in a market offering. The purpose of the sale was to help other Virgin (Branson) holdings weather the storm of Covid-19 as the travel and leisure industry was hit hard.
On May 19, 20.65 million SPCE shares were offered through Credit Suisse at $15.15. The shares were sold at $15. The stock found a bottom the next day and began heading higher.
It's worth noting another 4.35 million shares were sold between May 14 and May 19, so the full 25 million lot was sold, although some may see the headlines and think the company only sold 20.65 million because that got the press.
I believe Virgin Galactic received a boost from the recent SpaceX launch, and it wouldn't shock me if some traders mistook SpaceX for Virgin Galactic given Virgin Galactic's ticker, SPCE. The success of SpaceX does create hope though that private companies can be successful with space travel, so the sentimental boost likely helped the stock as well.
Tuesday morning a Form 424B3 (prospectus supplement) was filed stating that Virgin Group (Vieco 10) had registered to sell up to another 12.5 million via Credit Suisse. Seeing how the company began hitting the market with shares on May 14 after the May 11 announcement, one has to believe we'll begin to see 1 million shares per day until or unless the company can do another discounted lump sum offering like the first time around.
Assuming all 12.5 million shares are sold, Vieco 10's ownership will fall from 112.2 million shares to 74.7 million, a reduction of one-third in less than a one-month period. That will amount to a half a billion dollars in shares sold into the market, or 14% of the company's market cap.
I jumped too quickly at SPCE share on the last go-around. The stock didn't find a bottom until a big block hit the market, which leads me to believe this time around the focus needs to be on the insider selling updates.
If the company peels off 500,000 to 1,000,000 shares per day, then we'll want to wait until it has completed around 7 million shares. My guess is they will do the same approach of selling what the market will take while they shop around a block of 7.5 million shares. Once that is placed, then I'll look at the upside.
The current support sits around $14.71. Last time, the stock went from around $19.40 to $14.70, a 25% decline. There are half as many shares this time, so logic puts us around $15.31 as the possible low here. That actually ties in well to the average cost of the 25 million-share offering as well.
If a trader wanted to get involved via options, buying the June 19 $15.50 put and selling 3x June 19 $13.50 for a $15 net credit and a breakeven just under $12.50 holds some logic.
If you're looking long on the stock, then I'd want to see a successful test of the $15 area or a big block to get priced and clear.
Tim Collins provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Tim Collins, Mark Sebastian, Paul Price, Doug Kass, and others.