GameStop Day Dealers Move to Spaces

Now shares of blankcheck companies are almost always increasing. The last 140 SPACs that became known recorded gains or ended flat on their first day of trading, according to a Dow Jones Market Data analysis of trading in blank-check businesses until Thursday. One hundred and seventeen in a row rose in their first week. The profits tend to continue and will yield larger returns on average up to a few months.

Profits in companies that do not yet have an underlying business underline the wave of speculation in today’s markets. The merger with a SPAC has become a popular way for startups in busy sectors to become public and harness investors’ enthusiasm for futuristic themes.

But lately, day traders have even poured money into SPACs before announcing which company they are buying. At that point, it’s a pool of cash, so investors are betting that the company will eventually complete an attractive deal.

Despite the risks, many people are increasing the trade and emphasizing how online investment platforms and social media groups are driving individuals to new corners of the market, including shares of unprofitable companies such as GameStop and AMC Entertainment Holdings. Inc.

AMC 53.65%

The trend is also taking place in everything, from stocks of silver workers to SPACs, which were relatively rare before last year, but which suddenly appear everywhere in finance.

“I would only have a bad case of FOMO if I was not in SPACs,” said Marco Prieto, a 23-year-old real estate agent living in Tucson, Ariz. He referred to the fear of missing it. many individuals to put money in markets.

He has a portfolio of about $ 50,000 and about 60% of his investments are linked to blank check companies. Some of his positions were early in shell firms such as Social Capital Hedosophia Holdings Corp. VI,

while others are based on rumors related to possible transactions by companies, including Churchill Capital Corp. IV.

The company’s shares have more than doubled since Bloomberg News reported on January 11 that it was in talks with electric car company Lucid Motors Inc. to combine. t comment on the report and that it always evaluates a number of possible transactions. The stock has been rushing ever since.

Investors who bet on SPACs even before such reports are exceptional because the underlying value of a blank check firm is the amount of money it collects for a public listing before engaging in a transaction. The figure is usually linked to $ 10 per share. However, it has become common for investors to buy at higher prices such as $ 11 or $ 12 to buy the big name SPAC founders, such as venture capitalist Chamath Palihapitiya, and former Citigroup Inc. trader Michael Klein.

In another sign, empty check trades are now regularly traded, and several SPACs and companies that recently merged with them recently joined GameStop and AMC in a list of stocks that had position restrictions on Robinhood Markets Inc., a popular broker for day traders. The restrictions include the Churchill Capital IV of Mr. Small and a few SPACs from mr. Palihapitiya in the Social Capital Hedosophia SPCE. 2.74%

franchise.

The avalanche of money is pouring in for skeptics who are worried that everyday investors do not understand the dangers of trading. Even recent losses in some hot companies, such as the start of electric trucks, Nikola Corp.

NKLA -0.39%

and the healthcare firm MultiPlan Inc., which has merged with blankcheck businesses, does not scare investors because of the profits in other SPACs.

“It’s a lot of speculation,” said Matt Simpson, managing partner of Wealthspring Capital and an investor in SPAC. His business invests when SPACs go public or immediately thereafter, and then takes advantage when stocks rise and usually sell before a transaction is completed. He advertised an expected return of the strategy of 6% to clients, but last year it yielded 20%.

Ninety-nine SPACs have raised $ 25 billion so far this year, bringing the market on track to break last year’s record of more than $ 80 billion, according to data provider SPAC Research.

Rapid gains in the shares can lead to large payouts for their founders and the first investors in blank check businesses like Mr. Simpson. These earliest investors always have the right to withdraw their money before going through a transaction. The traders who come in later do not have the same privileges, but it was not a deterrent.

“If you do not dare, there is really no opportunity,” said Chris Copeland, a 36-year-old in New York State who started trading on the Robinhood platform with his girlfriend last month. About three-quarters of its portfolio is linked to SPACs such as GS Acquisition Holdings Corp. II.

The trading volumes in many popular blank check businesses have increased recently, an indication of investors’ increased activity. This trend even attracts the attention of some founders of SPAC.

“It worries me,” said veteran investor and SPAC creator Bill Foley. Trading volumes rose in one of the SPACs set up by the owner of the Vegas Golden Knights hockey team, especially as it announced a $ 7.3 billion deal to take over Blackstone Group. Inc.

BX 0.21%

Provider-Benefit Provider Alight Solutions last week.

One reason traders turn to blank check firms when they are just pools of cash is that the time it takes for a SPAC to uncover a transaction has decreased. White check businesses usually give two years to acquire a private business, but many nowadays only need a few months.

It also does not take long for investors to speculate about acquiring a blank check firm, especially since SPACs can indicate in which sector they hope to complete a transaction.

Excitement can be caused by a SPAC pioneer like Mr. Palihapitiya, which sometimes indicates its more than 1.2 million Twitter followers when an activity comes up. The former director of Facebook Inc. has taken the space tourism industry Virgin Galactic Holdings Inc.

public in 2019 and last month an agreement with Social Finance Inc.

Even though he invests in a number of empty check businesses outside of his own – often when SPACs need to raise more money to complete transactions – shares of his own companies can climb following such tweets. One example comes on January 21, when one of his blank check firms rose by about 4% after Mr. Palihapitiya started a tweet by saying ‘I’m making an investment in’ ???. ‘”

The SPAC has since returned profits after no news of an acquisition came in and it was revealed that Palihapitiya’s investments were in companies unrelated to its own. He declined to comment.

Mr. Palihapitiya also threw itself into the madness of activities surrounding GameStop trading, last week publishing an option trade in the stock and taking profits from it.

Reports of possible mergers such as the Churchill Capital IV SPAC and a possible combination with Lucid Motors are also quickly attracting hordes of buyers. The firm with empty checks is now owned by many individuals, including Messrs. Prieto, Copeland and Jack Oundjian, a 40-year-old living in Montreal.

“I’m very excited that we have a chance to participate in future unicorn companies,” or new ventures worth $ 1 billion or more, “he said. Oundjian said. He said he sees SPACs as long-term investments rather than fast-paced operations, and the sector owns about 30% of its $ 1.2 million portfolio.

Write to Amrith Ramkumar by [email protected]