2020 has been one of the craziest market environments in history, and it’s given rise to a “new” sector for us to trade — Special Purpose Acquisition Companies (SPACs).
There’s one theme we’ve witnessed this year, and it could kill the initial public offerings (IPOs) market.
You see, the IPO process has been brutal for some one-beloved unicorns.
It’s no wonder private companies have been looking for alternatives to go public.
Direct listings have been one of the hot alternatives, but SPACs are where it’s at right now.
I mean these are just some of the hot SPACs this year:
To be honest with you, I don’t think SPACs are going anywhere — let me show you the trends and what I’m watching specifically.
With SPACs getting a lot of attention and the success of some private companies going public through this unique route, I think we’ll see more action in this “sector”.
That’s why I believe it’s so crucial to look at this space, if you haven’t been doing so already.
You see SPACs are a much simpler alternative to the IPO market.
The way it goes is, the SPAC raises funds from the public markets, then find a company they want to acquire or merge with.
Once the target company is found, shareholders would either redeem their shares at the offering price, or they can get shares in the newly-formed company.
For private companies, this is an extremely attractive route.
They’re far cheaper than a traditional IPO. In other words, it’s less risky for the company. With an IPO, the terms are set after the deal is announced, so companies don’t really know if people will actually want shares of their stock.
With the way COVID-19 has damaged global economies and the way IPO roadshows were held to drum up demand… I think SPACs are here to stay.
I mean there are just so many problems with the IPO process, from the high fees charged by the investment banks to underwrite the IPO to the amount of time it’ll take to go public…
It’s tough for these private companies to raise enough capital to expand, in a relative short timeframe.
Not only that, but early investors aren’t rewarded and are actually constrained by extremely old rules. Company insiders typically have to hold their shares for 180 days after an IPO, but in six months, the stock can trade well below the offering price.
We’ve already seen how hot some of these SPACs have performed (after the merger / acquisition), and when I saw there was a little-known SPAC in my favorite area of the market to trade…
I was ecstatic.
I uncovered a company with 10X potential, and if I play it right… I can capture a large portion of that move.
Every single day, I come up with so many trade ideas — sometimes, it leaves me a little fatigued.
After all, one person can only come up with so many solid and high-conviction trade ideas.
That’s why I had a team of quants help me develop a scanner that alerts me to smart money bets.
It’s helped me achieve some of my largest percentage gainers this year, without doing a lot of heavy lifting.*
Don’t get me wrong though, I don’t just blindly follow — I still conduct my due diligence.
Today, I want to show you two interesting smart money trades that came across my screen and why they’re on my radar.
On Friday, this hit the newswire…
Mondelez International (MDLZ) sold 12.5M shares of its Keurig Dr Pepper (KDP) position, in a sale that brought $362M back to the company whose brands include Chips Ahoy, Oreo, and Ritz crackers (to name a few).
Although it might sound like a lot.
But relatively speaking, MDLZ still owns about 158M shares of KDP.
What’s more important than the story?
How Wall Street reacts to it.
And based on the price action yesterday… it was positive.
But that doesn’t sound nearly as sexy as the options action the Dollar Ace Scanner picked up.
You see, very late in the afternoon that day, at 3:20 PM ET… a trader came in and bought..
9779 MDLZ Sep $58.5 Calls
They Paid $0.45 Per Contract
For A Total Of $440K In Premium
And you know what?
Within 40 minutes those options were worth $0.60
In other words, they were up to $156K!
This is one trade I’ll keep on my radar and see if there’s any other options activity I notice.
Next up, there’s one trade that really piqued my interest.
Just a few days ago, Citron Research, a respected hedge fund run by legendary short-seller Andrew Left, sent this tweet out:
NLS is the ticker symbol for Nautilus Group…
Yes.. the makers of the Nautilus exercise machines.
And with the recent runup in Peloton (PTON), which has seen its market cap rise to nearly $25B, and stock price move up by nearly 200% this year…
…maybe old-school Nautilus can make a move from here…
Now, I’m not sure about you.
But NLS is up 751% year-to-date…
Now it’s ironic for a short-seller to be pumping a stock up after such an epic rise.
But this is 2020…
…and all bets are off.
After the Citron tweet, the stock hit a 52-week high of $16.86.
However, one options trader wasn’t as bullish.
But before I tell you about this bearish bet.
Because you’ll get a better understanding of what I’m talking about here, and other posts I’ll share with you in the future.
Let’s get started.
For the most part, I typically buy stocks or call options, on occasion I will be bearish but not really.
Also, big funds buy options to hedge their stock positions. And because of that, tracking bearish order flow can sometimes be tricky.
However, I do want to tell you about this bearish bet in NLS, and why I don’t think it’s a hedge.
The trader came out and bought…
160 NLS Sep20 $17.5 Puts
They Paid $2.55 Per Contract
For A Total Of $41K In Premium
Now, at the time of the trade, NLS was trading at $15.29.
So what does this tell us?
This is unlikely a hedge.
Because the options purchased were deep ITM.
You wouldn’t really hedge with deep ITM puts because it would limit your upside from holding the stock long.
Why would someone buy put options after such a bullish tweet by Citron?
Maybe this trader believes there was some shady business going on.
You see, prior to citrons tweets:
Actually days before them…
We saw bullish option orders from September 1st to the 4th.
In fact, on September 1st, one trader bought 1,789 September $10 Calls for $4.20.
Now if you do the math, that’s a $751K bet 8 days before the Citron tweet.
And like I said, there were a number of large-sized bullish bets during that time period.
The crazy thing about it is this…
If you’re interested in having more trading ideas at your disposal, want more confidence and conviction behind your trades…
What I’m about to show you will shock you.
We all know how there are dirty players in the game, and they’ll stop at nothing to get a one up on the market…
There was one trader who took this to another level to make a quick buck, and he got way too greedy.
He ran an elaborate scheme and manipulated stocks a whopping 23,000 times!
This trader used at least 36 trading accounts to execute his evil plan, and this is the type of action I want to expose.
It’s this type of reckless behavior I want to direct your attention to because it can actually help you become a better trader if you know what to avoid and look for.
Joseph Taub for 2 short years worked his scheme netting over $17 million in illegal profits.
But like most evil villains he had his minions. Together they tweaked the securities prices in a slew of public companies. All by coordinating the trades in heaps of brokerage accounts that Taub reigned over.
He used “straw accounts.” Basically, an account in another person’s name that he would conduct his shady trading.
These straw accounts allowed him to fly under the radar. Hiding his scheme from the law and regulators…. For a time.
But this is only half the action. ── On to the manipulation!
Taub would regularly make simultaneous transactions in many different styles. The goal behind this move was to falsely influence the market price of certain securities. Creating a complete illusion of interest in that stock.
And his minions would follow suit.
In one single year, between 2014 to 2015, Taub engaged in AT LEAST 23,000 market manipulations. On average around 40 per trading day.
During this time Taub and his minions would use at least 2 accounts to complete their dirty work.
One account would make multiple orders. Driving the stock price up or down. This would be the helper account. And it often would work at a loss to help the other account.
The other account would be the winner. This account would snatch up the stock after the helper account had worked its very illegal magic.
To try and keep their practice of the dark trading arts under wraps the account would usually be held at 2 different firms.
Total Taub used at least 36 accounts using his family members’ names, latching on to spouses, parents, and even their kids. He also had access to his associates’ accounts and their family members.
By 2016, Taub had expanded his illicit plan. Branching out to new brokerages and roping new minions in.
Often brokerage firms would catch on that something hinky was going on. Regularly the accounts were flagged for concerning trades of the manipulative nature.
Taub made sure the replies to these flagged accounts claimed innocent ignorance with a promise to never do it again.
Court documents would reveal just how greedy Taub had gotten towards the end of his scheme.
This a WhatsApp conversation between Taub and his minion. Directly after he received the news that one account was flagged and closed.
That sucks (:
Minion: Dude let’s retire move to the Caribbean
We need to make money
Minion: OK next account is ready to go.
Beyond the manipulative trading, Taub and his minions left a trail a mile long linking him to the scheme.
There also was a pile of emails from his minions to him holding usernames and passwords for the accounts. And slew of other exchanges. The idea that people think WhatsApp will hide their shady dealing is ill-conceived.
However, this is far from the only records linking him to the accounts.
See there is this little thing called an IP address. Maybe you have heard of it. Possibly in one of the thousands of crime dramas on Netflix?
Well, it records the internet connection you use.
I feel like we have all gotten at least one Facebook alert when we logged in somewhere new.
This is how a record of Taub logging in from his own home to use the straw accounts was proven.
Taub has admitted to his scheme and owned up to all of it. Because along the way he cheated the IRS.
…. By not having his name on the accounts involved in his scheme they received a lower tax rate than what would be applied to him. This allowed him to skirt a crap ton of taxes.
…. Talk about running a scam within a scam.
Right now, Taub is waiting to see if the courts will accept his plea.
If it is, he will receive 18 months behind bars. He will also forfeit $17.1 million and pay the IRS the $394,424 that he owes them.
Listen, there’s plenty of shady activity going on in the market… and this is just one of the ways the scum of the market try to make money.
The thing is, there are much larger players who are constantly throwing down wild beds in the options market and sometimes, it’s ahead of a catalyst event.
These seemingly well-timed trades line the pockets of the Wall Street sharks, and there is a way to legally steal their trade ideas.
If it sounds shady, it’s not… and let me explain to you why it’s not and how following the smart money has allowed me to generate some of my largest percentage winners.