Malt Liquidity 25
The Big GME Winner, and movie lottery tickets
The only time I will ever talk about PnL
Quite simply put, this is the greatest trade I’ve ever seen:
The position was originally opened with $50000, and as of today’s market open, I estimate this has been turned into close to $25-30 million at time of writing (depending on IV staying out of whack and not accounting for slippage while exiting.) But every step of this has been incredible. Every month (17 now!!) since the position has been opened, an update has been posted
and u/DeepFuckingValue called the squeeze over a year in advance to the month:
Not only that, but Friday, GME surged to 70s, and the trade wasn’t closed out. This is, without a doubt, the greatest market call ever. This is truly borderline time travel level. (For an explainer on what’s going on in GME, here’s a recap from a little while back.) I have had my own share of highly volatile trading experiences, but this entire position and the mental fortitude it takes to hold through these pops is beyond comprehension for me - it is true that if you have a market fully cornered, there is theoretically no reason to sell until people get desperate enough to continue crossing and bidding all the way up to get out, but in this specific case, this is predicated on hundreds of thousands of retail traders also holding through. One thing’s for sure - the movie premier for this one is going on TikTok, not HBO.
In which I experience a bit of writer’s FOMO
Part of why I write this in the mornings is because I am reading all this news and watching markets anyway, but a large part of it is for me to keep myself sharp while not actively trading. Sometimes, words are a little too on point:
When you have a battalion of spread-insensitive traders, each time someone crosses the spread, the price gets pushed higher and the naked short seller hurts that much more and creeps closer to flattening their position or getting margin called. Part of me wonders if it’s possible to start buying up stocks with high short interest between $700mm and $1.4 billion market cap in anticipation of these “soldiers” turning to them next. No, it can’t be possible to make a return doing this. Unless…?
Specifically, I was looking at AMC, due to its low share price and high short interest, which has a preternatural appeal to retail:
We find that stocks with high retail trading proportion (RTP) have strong lottery features and they attract retail investors with strong gambling propensity. Furthermore, these stocks tend to be overpriced and earn significantly negative alpha. The average monthly return differential between the extreme RTP quintiles is —0.60%. This negative RTP premium is stronger among stocks that have lottery features or are located in regions where people exhibit stronger gambling propensity.
And since that post on Jan 14, AMC has over doubled in price. This isn’t even a short squeeze - this is people anticipating a short squeeze while bidding a highly volatile stock back to the top of its range! But here’s the real kicker: something I’ve harped on pretty constantly is that when your company is overvalued, you should raise capital or acquire something with said valuation. And this is precisely what AMC is doing!
AMC, the world’s largest movie theater chain, said it had executed a commitment letter for $411 million in debt financing through increasing the size of and refinancing a European credit facility while raising $506 million in equity since mid-December.
The difference between AMC and Hertz, of course, is that AMC hasn’t openly declared bankruptcy before trying to utilize their equity surge, which in Hertz’s case resulted in the SEC obviously halting the pawning off of literally bankrupt stock on ‘hapless’ retail. But this case is good! While the stock is obviously super speculative and heavily shorted, companies should be able to use market mechanics to raise capital to try and survive if people are willing to give it to them. And, who knows, these buyers might make out like bandits as well. What would normally be done in a PE/LBO transaction to take the company private and then potentially sell public again down the line is now being done directly with retail purchases of highly distressed stocks. So, in a way, maybe Robinhood brought transactions previously restricted to private equity to the public markets, not just speculative option trades.
A quick update during the drafting of ML today…
So this happened. What a fucking squeeze!
Crippled Ripple
Another thing I have constantly talked about is that compliance costs for public companies are much higher than private companies. And, naturally, this resulted in the SPAC compliance avoidance boom. One company that found this out the hard way was Ripple, originally pitched as a “crypto for banks”, but which turned into nothing beyond just… selling Ripple.
…an IPO is off the table. Instead, Ripple’s future hinges on a judge’s ruling in a civil lawsuit filed in December by the Securities and Exchange Commission...
Ripple has earned more than $700 million from selling XRP to the public since its founding in 2012, according to the SEC, which said the company had generated only $23 million in revenue from sales of software through 2019. Banks haven’t adopted it at any scale, and the few that have used it have been directly subsidized by Ripple, the SEC alleges.
The core difference between Bitcoin or Ethereum and Ripple is that both BTC and ETH are run in a decentralized manner, while Ripple explicitly is a product with a CEO, and, concurrently, a sales pitch. These are subject to compliance! By definition, if you are offering a tradable medium to the public as a fundraising mechanism as well as it being your flagship product, it would naturally follow that this is a “public offering” of XRP right? That’s under the SEC’s jurisdiction! FT has a good summary of the lawsuit, but the fiscal summary alone - 700 mill raised, 23 mill revenue, zero adoption of product, and a ton of insider sales - makes me think that XRP is likely done for, especially given Gary Gensler’s fluency in the space.
On that note…
