PSTH - Pershing Square Tontine

[thepupil]

this has come in from 50% premium to 25% premium, would potentially add outright (no covered calls) at a 10% premium

[gfp]

June 22.50 puts are 2.00x2.40 at the moment.

[RetroRanger]

Spacs currently see a huge selloff. Many came back close to NAV. Good opportunities on the good ones. But i am in here via Pershing Square Holdings

[aryadhana]

this has come in from 50% premium to 25% premium, would potentially add outright (no covered calls) at a 10% premium

 

The premium is also much smaller than it looks.  Since there's an option to redeem at $20 what's really trading is PSTH' = PSTH + put(PSTH @ 20) + (2/9)*call(PSTH @ 23) where PSTH is the unobserved true share.  It's approximately true that the call shouldn't actually change anything since it's prorated out to all investors.  But the put is worth a lot.  There's a lot of natural volatility between the time a deal is announced and the merger closes, maybe particularly so with a recently-public stock.  Not crazy for a company IPOing at 20 to open with a 20 percent pop at 24, with 4 month out puts to sell at $20 price around $4 when they start trading.  So that's easily PSTH' = 24 + 4 = 28. 

 

The warrants were trading for more than they could ever possibly be worth (which is $13 if the stock trades to $36) for a long time.  Shares covered by shorting warrants was a beautiful trade last week.  You could get it for like $12.80 at some point for like a 60-90 percent return (if the stock trades above 23 and considering the tontine distribution) that is pretty close to guaranteed and in theory lever it up without losing much sleep.  Shame though Interactive Brokers doesn't crossmargin the pair as they would with a call. 

[thepupil]

Yea for some reason have ignored the warrants and focused on calls; thanks for flagging

[matthew2129]

this has come in from 50% premium to 25% premium, would potentially add outright (no covered calls) at a 10% premium

 

The premium is also much smaller than it looks.  Since there's an option to redeem at $20 what's really trading is PSTH' = PSTH + put(PSTH @ 20) + (2/9)*call(PSTH @ 23) where PSTH is the unobserved true share.  It's approximately true that the call shouldn't actually change anything since it's prorated out to all investors.  But the put is worth a lot.  There's a lot of natural volatility between the time a deal is announced and the merger closes, maybe particularly so with a recently-public stock.  Not crazy for a company IPOing at 20 to open with a 20 percent pop at 24, with 4 month out puts to sell at $20 price around $4 when they start trading.  So that's easily PSTH' = 24 + 4 = 28. 

 

The warrants were trading for more than they could ever possibly be worth (which is $13 if the stock trades to $36) for a long time.  Shares covered by shorting warrants was a beautiful trade last week.  You could get it for like $12.80 at some point for like a 60-90 percent return (if the stock trades above 23 and considering the tontine distribution) that is pretty close to guaranteed and in theory lever it up without losing much sleep.  Shame though Interactive Brokers doesn't crossmargin the pair as they would with a call.

 

This is false. 13$ is not the max gain. Trading above $36 for 20 days permits the company to redeem the warrant, but $36 is not the max redemption price. If the stock shoots to say, $100 on DA, you would make far more than $13

[wescobrk]

He said in the past he should have a company by the end of q1.

He only has a couple of weeks to make good on that statement unless he comes out and says it will take longer than he initially thought.

 

Except for his 2nd bet with credit default swaps last year he has done very well since his Herbalife days. Good to see that he is focused on money management again.

[gfp]

He ended up with 26.5 million CPNG shares in the IPO.  Was a 'day one' investor.  Donated them all to charities / his foundation.  What a guy!

[aryadhana]

this has come in from 50% premium to 25% premium, would potentially add outright (no covered calls) at a 10% premium

 

The premium is also much smaller than it looks.  Since there's an option to redeem at $20 what's really trading is PSTH' = PSTH + put(PSTH @ 20) + (2/9)*call(PSTH @ 23) where PSTH is the unobserved true share.  It's approximately true that the call shouldn't actually change anything since it's prorated out to all investors.  But the put is worth a lot.  There's a lot of natural volatility between the time a deal is announced and the merger closes, maybe particularly so with a recently-public stock.  Not crazy for a company IPOing at 20 to open with a 20 percent pop at 24, with 4 month out puts to sell at $20 price around $4 when they start trading.  So that's easily PSTH' = 24 + 4 = 28. 

 

The warrants were trading for more than they could ever possibly be worth (which is $13 if the stock trades to $36) for a long time.  Shares covered by shorting warrants was a beautiful trade last week.  You could get it for like $12.80 at some point for like a 60-90 percent return (if the stock trades above 23 and considering the tontine distribution) that is pretty close to guaranteed and in theory lever it up without losing much sleep.  Shame though Interactive Brokers doesn't crossmargin the pair as they would with a call.

 

This is false. 13$ is not the max gain. Trading above $36 for 20 days permits the company to redeem the warrant, but $36 is not the max redemption price. If the stock shoots to say, $100 on DA, you would make far more than $13

 

I used to believe that might be the case but no longer do.  The problem with what you're saying is that the warrants don't become exerciseable until 30 days after closing; that's also when the price trigger clock starts.  So the warrants will be redeemable by the time they become exerciseable.  There's also another trigger for trading above $20 for 22 days.  I will get back on this later, but there is actually a chart at the bottom of the prospectus that outlines the various conversion prices available. 

[ValueMaven]

Anyone warming up to this one now??

[fareastwarriors]

1 hour ago, ValueMaven said:

Anyone warming up to this one now??

I picked up some at 23, not too many shares, but will average down if this gets lower.

[wescobrk]

I started buying the warrants once they went below $10. So far I'm down. I also bought OACB warrants and I'm also down in those as well. So far it has been a bad "investment" more like speculation on my part.

 

[NBL0303]

21 hours ago, wescobrk said:

I started buying the warrants once they went below $10. So far I'm down. I also bought OACB warrants and I'm also down in those as well. So far it has been a bad "investment" more like speculation on my part.

 

In the view of Buffett and Munger, it is not a "bad" investment simply because it has gone down. Every great investment in history has gone down. Likewise, it would not make it necessarily a "good" investment simply if it went up on paper. Enron did that for a while too right. The only point is that on a website inspired by Buffett and Munger, you can be free from thinking you made a mistake on this simply because it has gone down in market value. You are right or wrong based on the quality of your reasoning and not short-term market movements, and maybe not even one-off long-term outcomes from a given investment.

[invest0r]

Long common ($24)

Short warrants ($8)

is still juicy. 
 

60% return if there’s a deal with shares above $23. 
 

A positive return all the way down to $16. 

Edited April 24, 2021 by invest0r

[NBL0303]

1 hour ago, invest0r said:

Long common ($24)

Short warrants ($8)

is still juicy. 
 

60% return if there’s a deal with shares above $23. 
 

A positive return all the way down to $16. 

Do you do them 1 for 1, meaning short one warrant for every one share of common owned?

[thepupil]

I haven’t shorted the warrants because 

1) 5 years is a long time 

2) no guarantee on borrow availability/cost, don’t have to worry about this with calls 

seems simpler to be short calls

[matthew2129]

 

 

7 hours ago, invest0r said:

Long common ($24)

Short warrants ($8)

is still juicy. 
 

60% return if there’s a deal with shares above $23. 
 

A positive return all the way down to $16. 

Where do you get 60% from? Wouldn't it be 7/16, or closer to 40% return? Also the warrants are trading near all time lows atm, seems like you'd be better off waiting till there was a spike in vol before putting on this short hedge. I sold covered leaps back in February and am looking to buy them back this week since IV has recently been crushed

Edited April 25, 2021 by matthew2129

[thepupil]

yea, my cost basis on the common is $25.9 and average price sold on the Dec $40 calls is $5.4. The common has fallen to $24.00 (loss of $1.9) but the calls have fallen to $1.5 (gain of $3.9), so the short call has worked nicely in terms of hedging the decline in the common, but obviously hasn't been too exciting of a position.

I'm trying to figure out what to do now. the $40 call still seems "expensive" at 70 vol but I think when I sold it it was 120 or something. I'm kind of tempted to cover and just let her ride / bear the 16% downside to trust value, but I doubt she goes to $40 on a deal announce so covering a $40 call for $1.5 (which is 40% of difference between px and trust value) seems dumb. 

[matthew2129]

8 minutes ago, thepupil said:

yea, my cost basis on the common is $25.9 and average price sold on the Dec $40 calls is $5.4. The common has fallen to $24.00 (loss of $1.9) but the calls have fallen to $1.5 (gain of $3.9), so the short call has worked nicely in terms of hedging the decline in the common, but obviously hasn't been too exciting of a position.

I'm trying to figure out what to do now. the $40 call still seems "expensive" at 70 vol but I think when I sold it it was 120 or something. I'm kind of tempted to cover and just let her ride / bear the 16% downside to trust value, but I doubt she goes to $40 on a deal announce so covering a $40 call for $1.5 (which is 40% of difference between px and trust value) seems dumb. 

Yea I know what you mean about the calculus of buying back covered calls that you think will expire worthless. Before they become worthless, however, I think they will go up in value upon announcing DA, (even if the DA price spike only gets to $30-35), at which point you could resell them again for more. No guarantee, of course. 

[invest0r]

22 hours ago, matthew2129 said:

 

 

Where do you get 60% from? Wouldn't it be 7/16, or closer to 40% return? Also the warrants are trading near all time lows atm, seems like you'd be better off waiting till there was a spike in vol before putting on this short hedge. I sold covered leaps back in February and am looking to buy them back this week since IV has recently been crushed

2/9 of warrant are in each share. Funny math but if warrants are $8, that’s another $1.78/share value in each common. 
 

 

[Gregmal]

22 hours ago, matthew2129 said:

Yea I know what you mean about the calculus of buying back covered calls that you think will expire worthless. Before they become worthless, however, I think they will go up in value upon announcing DA, (even if the DA price spike only gets to $30-35), at which point you could resell them again for more. No guarantee, of course. 

All I'd add to that is that I cant count the number of times Ive thanked my lucky stars for buying back deflated puts Ive shorted despite knowing they'd expire worthless. Its kind of one of those gut feel things, but to me theres always a point where I look at the contract and dont think its worth my time and liquidity even if the probable outcome is worthless expiry. I'd imagine its similar if not even more important with calls. Ive actually been considering that with some June 22.50. Shorted a bunch a hair under $3 and now look at them trending under a buck and who knows what happens but there's nothing wrong with seeing that the profile has changed and just waiting for greener pastures. 

[thepupil]

I got greedy and covered my calls @ $1.50. This increases my capital at risk in PSTH (delta b/w trust value and px) from ~50 bps to 100 bps (650 bp position in common w/ ~16% downside to trust = 100 bps).

I'm just feeling frisky today. 

It's hugely expensive to the rest of the SPAC market, but I don't care. LFG Bill. PSTH to the moon!

 

 

Edited April 26, 2021 by thepupil

[wescobrk]

On 4/22/2021 at 8:06 AM, NBL0303 said:

In the view of Buffett and Munger, it is not a "bad" investment simply because it has gone down. Every great investment in history has gone down. Likewise, it would not make it necessarily a "good" investment simply if it went up on paper. Enron did that for a while too right. The only point is that on a website inspired by Buffett and Munger, you can be free from thinking you made a mistake on this simply because it has gone down in market value. You are right or wrong based on the quality of your reasoning and not short-term market movements, and maybe not even one-off long-term outcomes from a given investment.

I've read the Intelligent Investor. I understand how value investing works. My point is we don't know the target we are simply going on faith Ackman will make a great purchase. Most of the time he does but he has some really bad mistakes in the past as well: JC Penny, Herbalife, that horrible pharma company that he got in a media spat with Munger about and there are others

[matthew2129]

Ackman interview with the WSJ today suggesting incoming announcement of taking an "iconic" durable growth company public. SPACs are generally snake-oil/dead-money at this point, but all signs point to Ackman striking gold with a Bloomberg IPO on this one.  

[MattR]

19 hours ago, matthew2129 said:

Ackman interview with the WSJ today suggesting incoming announcement of taking an "iconic" durable growth company public. SPACs are generally snake-oil/dead-money at this point, but all signs point to Ackman striking gold with a Bloomberg IPO on this one.  

PSTH is quite shareholder friendly, but in the end he does get quite a bit of equity. So the deal does not only influence his reputation, but also the performance of the fund.