Big Risky But Rewarding Trend in the Stock Market Right Now
Do you want to miss out on the major SPAC (Special Purpose Acquisition Company) opportunities? If not, read on.
There’s a reason SPAC’s are so popular for traders, and here’s a quick guide to help you make a good decision. We won’t get too in-depth into technical definitions and theory, so if there is a word or something in this post you don’t understand, be sure to look it up.
Let’s get this disclaimer out of the way first. No investment or trading idea works all of the time. And always first speak with your certified financial advisors before taking any action. We all have different situations, and SPAC’s are considered VERY risky. NEVER invest or trade with more than you are willing to lose.
Now that’s out of the way, let’s quickly talk about SPAC’s.
A special purpose acquisition company is basically a company that goes public with no product or service and looks for a private company to take public through M&A (Mergers and Acquisitions).
This section about phases is a KEY part of understanding the trading of SPAC’s.
And there are three major phases of SPAC that the public can typically follow (or at least they aim to achieve these milestones). These are IMPORTANT milestones because you can follow these on the news and start to notice the trading trends!
First, the SPAC goes public on the stock market and has 18 months to find a private company willing to go public with them. Second, if all goes right, the SPAC will find a private company that agrees to start discussing the possibility of going public. And third, the SPAC goes public under a new ticker symbol for the new publicly traded company.
Now we need to get into the MINDSET of SPAC’s.
Understand that at ANY point during the SPAC life-cycle from beginning up to the day it changes ticker symbols, tons of things can go wrong and the SPAC goes under. It is INCREDIBLY risky, and SPAC’s are highly volatile meaning they can have huge fluctuations on a daily or weekly basis between 10–50% of more up or down. If you have never had a day where you have felt the mental pain of having an intrinsic loss of 30%, SPAC’s are not for you.
But here’s why SPAC’s may be even less risky than even big blue-chip stocks: The CERTAINTY of SPAC success increases as the SPAC get’s closer to merger. Meaning: more people are likely to feel safer investing, and a higher chance of success.
With blue chip stocks, there is not always such news. You can wait for a Quarterly Earning Report or Annual filing, or trade around dividend dates.
But SPAC’s must release reports to the SEC (which get’s circulated in the news) as they get closer to merger. And with every news release about the merger becoming more “certain,” means more investors jumping in.
You can basically follow a SPAC over the course of 18 months and ride the various trends that come with news releases.
To summarize this previous section, the main premise is that as certainty of the SPAC merger goes up, more investors feel safer getting shares. And the news can be very predictable. For example, what’s safer, a SPAC at month 17 with no news of merger? Or a SPAC at month 13 that has 5 major banks invested and a private company that has already gone into initial phases of agreements to go public?
See. You can understand this stuff without complicated technicals.
Now let’s briefly look into the type of trading. We’ll talk about three major types of traders and how they affect SPAC’s.
Day Traders — They don’t care about the SPAC as a “business that will change the future” as much as they want to follow the up and down trends. They are a driving force in what makes SPAC’s go up and down every day. They love volatility and volume. Big news, means big volume, means big volatility, means easy to track trends. In and out in a day.
Swing Traders — Combine understanding what the company means long term, with looking at specific trends on the chart. But it’s not as difficult as it sounds. You might decide you want to get in super early on SPAC’s or only a week or two before merger. You’ll have to decide this.
Investors — Anyone planning longer than 6–12 months. Probably the majority of people.
Obviously, there are more types, but those are the main ones to think about their actions as the SPAC goes on.
So finally, let’s get to the scary part. Making a decision on what SPAC to trade on. After all, most people will say they are risky.
At present, there are about 250+ SPAC’s out on the market. Depending on where you read the news, some will say anywhere between 60%-80% of SPAC’s do poorly after merger. Some don’t even make it to merger.
So let’s be incredibly, incredibly, incredibly pessimistic on this, and say that 90% of SPAC’s will not be good long term investments. Just because they might not be good long term performers does not mean they do not make good near term trading opportunities.
Well that leaves 25 good SPAC’s. The top 10%.
That is a LOT of SPAC’s to work with and follow on a daily or weekly basis!
But let’s be even more pessimistic and consider that only 50 SPAC’s are even in a “safe stage” where they have a company they are in merger talks with. Well that leaves you with AT LEAST 5 good SPAC’s. And they are much easier to find than you think.
So how do you find a good SPAC? Think like a good chess player.
A good chess player doesn’t calculate every single possible move 3–10 moves out that’s impossible. Only a computer can do that. A good chess player quickly eliminates the known bad moves, and focus on a few of the best moves, and sometimes throw in a bit of creativity.
So that’s what you need to do to find a good SPAC.
Figure out what a bad one looks like by asking questions such as:
+ Are there big banks invested? If big banks are in on it with their quants and big money, there must be something their analysts know.
+ Is the industry set to grow?
+ Does it have a lot of competitors already? Maybe it won’t have lot’s of room to grow.
+ Is there low of volume? Is anyone even talking about it? If no one cares about it, there’s probably a reason, whether their marketing, leadership, PR, news, product, or service isn’t worth publicity.
+ What does the market say right now about the company? Is it in an emerging growth industry or a stagnating industry?
And once you get rid of the SPAC’s that seem like a “bad move” (until more information is known to determine it is a good move), you will probably have narrowed down your list to maybe 50 SPAC’s.
From there, you can just focus on looking at the charts to see what people are doing.
And this is how you can quickly and effectively get into the SPAC game to find great opportunities to capture some of these gains of 25%, 50%, or even 100% over a week!
And when I say “over a week” I don’t mean “press buy, and notice gains next week.” As you have seen already, the research may take as much as a day to a couple weeks of following company’s before you buy.
But after you’ve found just the right SPAC, with “good news” coming out, at a price you find to be a great price for a great company, then you’ve got a winner on your hands.
Remember, the key’s to this are:
1) Predictable news and events.
2) Understanding that the HIGHLY PESSIMISTIC rate of 90% is not a probability. It doesn’t mean you have probability that 9 times out of 10 you will fail. It is a sign to find the 10% of highly successful ones that will be a good opportunity.
And finally, whether you decide to hold after the merger, is ultimately up to you.
Happy trading.
P.S.
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