GameStop day traders are moving to SPACs

Now the stocks of blank check companies are almost always going up. According to a Dow Jones Market Data analysis of blank check trading through Thursday, the last 140 SPACs to go public have either made profits or finished flat on their opening day. One hundred and seventeen in a row are up in their first week. Profits generally persist, generating greater returns on average for up to several months.

Profits at companies that do not yet have underlying businesses underscore the wave of speculation in current markets. Merging with a SPAC has become a popular way for startups in vibrant industries to go public and take advantage of investors’ enthusiasm for futuristic themes.

But lately, day traders are even putting money into SPACs before revealing which company they are buying. At that stage, they are pools of cash, so investors are betting that the company will eventually strike an attractive deal.

Despite the risks, many are embracing trading, underscoring how online investment platforms and social media groups are now flocking individuals to new corners of markets, including stocks of unprofitable companies such as GameStop and AMC Entertainment Holdings. Inc.

AMC 53.65%

That trend is also happening in everything from silver miners’ stocks to SPACs, which were relatively rare last year but are suddenly ubiquitous in the financial world.

“I’d just have a bad case of FOMO if I wasn’t in SPACs,” said Marco Prieto, a 23-year-old real estate agent based in Tucson, Ariz. Lives, referring to the fear of missing out on that many individuals drive to put money into markets.

He has a portfolio of about $ 50,000 and about 60% of his assets are tied to blank checks. Some of his positions are early in vacant firms such as Social Capital Hedosophia Holdings Corp. VI,

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

Shares in that company have more than doubled since Bloomberg News reported on Jan. 11 that it is in talks to combine with electric car company Lucid Motors Inc. Don’t comment on the report and that it always evaluates a number of possible deals. The stock has been spinning ever since.

Investors betting on SPACs even before such reports are available are extraordinary because the underlying asset of a blank check company before pursuing a deal is the amount it will raise for a public listing. That figure is typically pegged to $ 10 per share. Still, it has become common for investors to buy at higher prices, such as $ 11 or $ 12, to support the big names of SPAC, such as venture capitalist Chamath Palihapitiya and former Citigroup Inc. deal maker. Michael Klein.

In another sign, blank check companies are now commonly traded by individuals, various SPACs and companies that have merged with them recently joined GameStop and AMC on a list of position-limit stocks on Robinhood Markets Inc., a popular brokerage for day traders . Those restrictions include Mr. Klein’s Churchill Capital IV and a few Mr. Palihapitiya’s SPACs in the Social Capital Hedosophia SPCE 2.74%

franchise.

The flow of money pouring in is a concern for skeptics who worry that everyday investors don’t understand the dangers of trading. Even recent losses at a few hot companies, such as Nikola’s electric truck startup Corp.

NKLA -0.39%

and healthcare company MultiPlan Inc. that merged with blank check companies does not deter investors because of the gains in other SPACs.

“It’s a tremendous amount of speculation,” said Matt Simpson, managing partner at Wealthspring Capital and an SPAC investor. His company invests when SPACs go public or right after, and then profits when stocks rise and is typically sold before a deal is finalized. He advertised clients with an expected return of the strategy of 6%, but 20% last year.

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

Rapid gains in the stock can result in big payouts for their founders and the first investors in blank check companies like Mr. Simpson. These first-time investors always have the right to withdraw their money before a deal goes through. The traders who get in later do not have the same privileges, but that was not a deterrent.

“If you don’t take any chances, there’s really no chance at all,” said Chris Copeland, a 36-year-old in New York State who started day trading with his girlfriend last month on the platform Robinhood. About three-quarters of its portfolio is linked to SPACs such as GS Acquisition Holdings Corp. II.

Trading volumes at many popular blank check companies have increased recently, an indication of increased investor activity. That trend has even caught the attention of some SPAC founders.

“It worries me,” said veteran investor and SPAC creator Bill Foley. Trading volumes have skyrocketed in one of the SPACs founded by the owner of the Vegas Golden Knights hockey team, especially since it announced a $ 7.3 billion deal to acquire Blackstone Group Inc.

BX 0.21%

-backed benefits provider Alight Solutions made public last week.

One of the reasons traders get into blank check businesses when it’s just cash is that the time it takes for an SPAC to reveal a deal has decreased. Blank check businesses normally give themselves two years to acquire a private business, but many today only take a few months.

Also, it doesn’t take long for investors to speculate on a blank check takeover, especially since SPACs can indicate which industry they hope to strike a deal in.

Excitement could be caused by a SPAC pioneer like Mr. Palihapitiya, who sometimes hints at his more than 1.2 million Twitter followers when activity is on the way. The former manager of Facebook Inc. acquired space tourism company Virgin Galactic Holdings Inc.

public in 2019 and reached a deal last month with Social Finance Inc.

Even though he invests in a number of blank check companies other than his – often when SPACs have to raise more money to close deals – the shares of his own companies can soar after such tweets. An example was January 21, when one of its blank check companies rose about 4% after Mr. Palihapitiya tweeted by saying “I am finalizing an investment in ‘???.’“

The SPAC has since returned those profits after no news of a takeover came out and it was revealed that Mr. Palihapitiya were in businesses unrelated to his. He declined to comment.

Mr. Palihapitiya has also thrown himself into the frenzy of GameStop trading activity, publishing an options trade in the stock last week and taking profits there.

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

“I am very excited that we will have the opportunity to participate in future unicorn companies,” or startups worth $ 1 billion or more, said Mr. Oundjian. He said he sees SPACs as long-term investments rather than quick transactions, and holdings tied to the industry make up about 30% of his portfolio of about $ 1.2 million.

Write to Amrith Ramkumar at [email protected]