Spartan Energy Acquisition Corp. (SPAQ) , acquirer of Fisker Automotive, is entering dangerous territory for traders. Note, I'm not talking about bulls or bears here, I'm talking about bulls AND bears.
I know parallels, warranted or not (I side on the not side) have been made between SPAQ and Nikola (NKLA) in a business and due diligence sense. Again, I don't believe that to be the case; however, there is a parallel. SPAQ is quickly ascending to cult status in a similar way Nikola did and Tesla (TSLA) already has. As many of you already know, cult stocks are driven by emotion more than anything else.
It's been evident now on more than one occasion.
First, when Jim Cramer first mentioned SPAQ on Mad Money, he drew some comparisons to Nikola and the Special Purpose Acquisition Corporation (SPAC) space in general. That segment was met with a firestorm of hate on Twitter. It's one thing to disagree, but it should be done with respect and with facts rather than insults and cursing. Granted, that alone doesn't equate to cult status.
So, let's move into the action Monday late into the day. After hours, Hindenburg Research posted this tweet:
We are releasing a new report tomorrow.— Hindenburg Research (@HindenburgRes) October 12, 2020
Immediately, the guesses began to pour in. The name I saw more than any other was SPAQ. And the stock began to fall in after-hours trading.
If one examined the idea from a non-emotional, logical perspective, it makes little sense to attack SPAQ before the merger is closed. First, the redemption option still exists for stockholders, so their downside is limited. Second, the put options have a huge premium. The stock carries an implied volatility in the 130s, so combined with a floor around $10, it doesn't leave a huge amount of upside unless Hindenburg wanted to gamble on October $12.50 puts that expire this Friday.
Unfortunately, logic takes a backseat to emotion, especially in a cult-driven stock. To see the immediate selling in the stock on the off chance Hindenburg's report could possibly be on SPAQ is downright scary (Hindenburg's report was actually about Loop Industries (LOOP) ). We've seen incredible runs in so many stocks that it could have been any of hundreds or possibly thousands of names.
For traders, this means when the stock runs, it will most likely run SIGNIFICANTLY higher than most anticipate is possible or logical. The same is true on a move to the downside. I envision this name be a fun stock to trade, but very challenging. It is one that is going to test discipline in terms of stop losses and challenge a trader's ability to let winner's run.
This is neither condemnation nor coronation of SPAQ and Fisker. I'm intrigued by the name and do own some option combination positions that currently lean slightly bullish but have more been focused on extracting premium from the options.
In short, leave logic at the door, trade the trend, and stay extremely disciplined. SPAQ has shown its colors, so believe them. Until the company begins to produce cars along with fundamentals, this is how I foresee traders will need to play it.