Friday File: A New Arbitrage, More Gambling, Royalties for the Watchlist, and Bubble Thoughts
by Travis Johnson, Stock Gumshoe | June 19, 2020 6:52 pm
I feel very cautious, yet also bought four new positions this week in the Real Money Portfolio...
This is premium content. To view this article (and to have full access to the rest of our articles), sign up. Already a member? Log in.
Source URL: https://www.stockgumshoe.com/2020/06/friday-file-a-new-arbitrage-more-gambling-royalties-for-the-watchlist-and-bubble-thoughts/
Do you have a book recommendation or website to learn more about hedging with put options?
No, sorry, I don’t like to use the overly-analytical greeks to quantify options (I prefer to just model out some real world scenarios and make my own risk-reward decisions) so most of the options guides I see are unnecessarily complicated.
Perhaps someone else has a preferred source. Personally, I think the CBOE tutorials on options are a good starting point for understanding how they work… but there’s no substitute for wading in and making your own (small!) mistakes.
Thanks for the reply. I’ll take a look at CBOE tutorials. There’s plenty on the net to look at and learn. It’s like you said. Gain from experience by slowly getting into the water and hopefully only make small mistakes. I found https://www.tastytrade.com/tt/learn. They appear to have some good online tutorials.
..btw. Thanks for you’re excellent service! I tell everybody that I know that your service is hands down the BEST on the internet. It’s not even close. I’m close to getting my brother to subscribe to the premium service.
I can highly recommend http://www.tastytrade.com which is produced by Tom Sosnoff and Tony Battista. These two developed the trading platform “think or swim” which they sold to T.D. Ameritrade who puts it at the disposal of all their clients. These two are not only brilliant, they are also entertaining. Their videos on options are absoutely recommendable, and they also produce live shows on options trading.
Travis, you have a huge portfolio, many times larger than gurus suggest. How do keep track of them and also make sure they don’t work against each other.
Stubbornness.
Determination, discipline and acuity of mind, if I may reword.
Travis,
Speaking of SPAC. I had two this year, they all worked out okay for me, they were warrants of DKNG AND NKLA. I know something about warrants but never hold them long enough
to exercise them, I just sell them as stocks, make my life simple.
I am very impressed by this SPAC, SHLL, it was IPO in Feb 28, 2020, it announced today that SHLL has a target already: HYLIION.
I have a good feeling about this merger. It looks like Tortoise management team know exactly what they want. So what do you think?
I own SHLL/WS.
I also own RPRX, GAN, DKNG and others.
Pretty interesting story — like Nikola, the story is probably more important than the actual business.
$SHLL $HYLN Hyliion Inc. and Tortoise Acquisition Corp. Announce Merger, Combined Company to Remain Listed on NYSE
Hyliion will be merging with Tortoise Acquisition Corp. (NYSE: SHLL) and the newly combined company will remain on the New York Stock Exchange under the new ticker symbol (“HYLN”).
Pro forma implied market capitalization of the combined company over $1.5 billion.
Transaction includes an upsized $325 million fully committed PIPE.
Proceeds will be used to fully fund the commercialization and mass production of the company’s electrified powertrain solutions.
The compatibility of Hyliion’s products with conventional vehicle architectures and chassis accelerates near term adoption of electrification solutions in the commercial vehicle market.
Founder and CEO Thomas Healy will be joined by Tortoise Acquisition Corp.’s Vince Cubbage and Stephen Pang in a newly formed board of directors.
https://www.businesswire.com/news/home/20200619005104/en/Hyliion-Tortoise-Acquisition-Corp.-Announce-Merger-Combined Thank you for sharing ytse!
I have a small number of warrants in two SPACs $GPAQW and SAMAW
SPACInsider link:
https://spacinsider.com/weekly-list-spac-ipo-transactions/
#Best2ALL!
Ben, I’m not sure what happened this last week but both of those SPACs scored yearly highs. Nice work!
Regards,
Frank
Hi SoGiAm,
How did you find warrants GPAQW and SAMAW? Have you subscribed to spacinsider? When you get a chance, please shoot me an email to rasimuni@gmail.com
Thanks!
Hi Travis,
Just curious, but I noticed on the Real Money Portfolio that you’ve recently sold several of your long (LEAP) calls on Sea Ltd (SE). I hold SE LEAP calls myself, and they have had an amazing run lately. I don’t recall seeing any discussion from you about SE’s prospects, that it has gotten ahead of itself and profits should be taken, etc. Can you advise your thinking on this sale?
I sold a third of the position when it advanced enough to cover the entire cost of the position. With options, even LEAPs, I’m always mindful of the eroding time value and of the chance that a bad quarter could bring a huge loss, so I tend to take profits along the way for at least a portion of the position instead of holding out for peak possible returns.
I still think the future looks bright for SE… but it has also had a tremendous run in the last few months, and My optimism about their future prospects doesn’t mean the stock can’t fall 30% next quarter.
Gilat (GILT) . Travis, I love your wise comments. I use them constantly for hauling me back from wild and impulsive investments…and I am someone prone to them. Junior miners being a particular weakness.
your Gilat bet surprised me: Russian approval, Israeli high tech with exposure to aviation, 6-month fruition with a totally unclear global economic situation. 3.5% means you have put 60% as much into this that you have in physical metal, or Berkshire. you are going where I – a bit of a fool- would not go. That’s a first!
I wish you well with this, and I really feel I get great value from this subscription. Thank you. if you come to New Zealand Ill give you a wine tour if you like wine…
It is really about the risk perception, so mine is clearly different from yours here — which is good, we all have to think for ourselves. The risk of the sector or company having a bad year doesn’t really worry me, it’s almost all cash and the deal is financed (with money being easy in general), so I don’t have to care how the companies do, it’s really just the risk of the deal being consummated that I have to worry about. And I think the risk of the deal being canceled is very low… though yes, of course, Russian approval is a wild card and other conditions could perhaps arise that cause problems.
Being Russian I can tell Russian Antimonopoly is very difficult and they have rejected many expected approvals and deals fall apart. It is not just a bureacracy but more politically driven decision, not always economically justified.
Why did you bye gilt stocks and call options, instead of sell gilt put and finance the call option with the premium?
I didn’t want to be entirely levered like that, particularly because the options are pretty illiquid, but I thought about it.
after reading Red Notice by Bill Browder, even if allowing for his situation and adjacent (understandible) bias – I think a reasonable man would conclude that the “judicial process” in Russia is heavily political and therefor essentially corrupt.
I wouldn’t disagree, and their anti-monopoly agency has grown a bit more active in the past few years, but they haven’t blocked many mergers.
I think the corruption of the Russian system is a given and can, therefore, be accounted for. A bit like the US system?
Travis,
You provide a great service and I have benefitted greatly. I really appreciate your thoughtful
commentary and musings.
Thanks so much for the heads up on SSSS,GAN, to name a few.
Travis,
Just wondering the rationale for your hedging vehicles as far as indexes? I see last year, you hedged with SPY and QQQ and so far this year SPY again. A couple of weeks ago you switched to IWM. Any particular reason?
I didn’t get rid of the SPY put, that’s still in there (though eroding in value every day, thankfully), but my general thinking was that if things fall apart again in a big way we’re likely to see the big companies continue to outperform the smaller companies. That, and my portfolio has gotten a little bit more small-cap focused over the past year or so, with more of an interest in hedging against some of the smaller high-growth names than just hedging against the S&P 500 with the heavy weighting in FAANG and the similar giants.
Hello Travis. Another great post! I have email notifications setup for all your posts, but when busy I tend to skip the Daily Updates, though I never fail to catch the Weekend Update, Trade Note & Friday File email notifications. I was therefore surprised I missed out on the Avalara Trade Note update, until I realized it was included as part of the June 16 Daily Update. Could I suggest keeping the Trade Note notifications separate from the Daily Updates? Or when they overlap as they did this time, to send out the Trade Note update anyway? Thanks for the consideration!
Hi Bill, thanks for the suggestion. We try to take the middle ground and combine emails as much as possible, because the most consistent feedback we’ve gotten over the years has been “I want less email,” but perhaps sometimes we go too far on that.
Hi Travis,
What are your thoughts about an additional small position in volatility or Bear 3x leveraged ETFs ($HIBS)to protect your portfolio. I understand your reasoning with Put options.
I try not to use the levered ETFs, because they can generally only hit their target over very brief periods of time and are designed for day traders. If the market goes up for a couple months and then crashes, a 3X Bear ETF could fail to provide any hedge because it will fall so dramatically during the market rise that it can’t really come back from that.
Just look at a chart for some perspective — HIBS showed a 200% return during the crash in March, but since the crash ended and the market bounced back it is now down something like 70% for the year.
HIBS data by YCharts
It would have to have another March-like performance sometime soon just to get back to where it was in January. It can work very well if you time things closely, but it’s not designed to mirror long-term performance and it’s probably not going to work to hold it for even six months as a hedge. It might work, if the timing is fortunate and the market goes steady down for months or if you time the collapse well, but the odds are stacked against you once you hold one of these levered ETFs for longer than a couple weeks.
Travis, I would really like to hear your and others opinion on TVIX for protection and/or profit in a down market. I should have made a bundle on it in the last 2 months but got cold feet; should be able to manage position better next time. What makes this and other leveraged ETF’s only good for day traders? If you are willing to hold for the long term, you should at least get your money back; not the case with buying Puts on SPY. Thanks
The daily nature of the matching results, combined with leverage and the cost of using derivatives and futures to create that leverage, means the value decays over time in most scenarios. TVIX in a period of a couple weeks or, if you time it well, even a few months, might work to hedge against the market… but you definitely won’t get your money back if you hold for “the long term,” these are trading vehicles that you have to get into and out of at the right time, which is just as hard to do with hedge positions as it is with any other investment — this is the five year chart of TVIX, just to illustrate that decay (most 2X or 3X ETFs will show something similar, though VIX-based ones are the worst because they use only futures — which almost automatically decay most of the time because futures have to be rolled over each month):
TVIX data by YCharts
At times when the VIX spikes, these kinds of ETFs show massive short-term returns… but if the VIX doesn’t spike, they pretty quickly decay in value. And they tend to do 100:1 consolidations every couple years, or something similar, which is why the price isn’t in the pennies.
Travis thank you for finding $GAN and your continual research with it. In regards to their new mystery customer I was watching Cramer with $PENN CEO and Barstool CEO and they are currently developing their betting app. What do you think the odds are that it is in fact $PENN ? If that is the case this I’d think this would be a much bigger deal than originally thought. I believe the Barstool app will bring a huge active customer base and it may be the first time many hear of $GAN.
The app is expected to be finished before football season (pre q3) so it may be worth some OTM call options on $GAN if in fact that is their new customer.
I ‘ve been searching both $PENN and Barstool careers and didnt see much to conclude they were developing it inhouse. If barstool/penn is anywhere near 50% likelyhood of being the new customer I think the calls are well worth the risk/reward
-Tyler
I don’t know anything else, sorry, though I did know that Barstool was PENN’s entree into competing in sports betting. The CEO did mention that their new customer was someone who had previously used another company, Penn reportedly used Kambi to set up its first few sportsbooks earlier this year so it would be odd if they were already switching… but Penn was also disclosed earlier in the year as a simulating gaming (non-money) client win for GAN. I hope it’s PENN, though I lean more toward guessing it’s Churchill Downs, which just suffered through an outage a couple months ago because their BetAmerica technology provider, SBTech, owned now by DraftKings, was taken down in a cyberattack.
It doesn’t really matter either way, the size of the market opportunity is so huge that my biggest fear is that the competitors will all destroy each other to take market share, but it’s so early yet there’s no need to overthink it.
If you have unrealized gains in GOOG and sell and immediately buy GOOGL do you not pay tax on the gains on the sale? Is this covered because you are rebuying the same company?
Yes, it’s all taxable. It is not negated by buying and selling different share classes of the same company.
I wouldn’t do this if my Alphabet holdings were in a taxable account.
Got it, thanks for the clarification.