Jeff Baker 9/6/2020
Executing the trades
**the examples and commentary given are for informational purposes only and as with any investment decisions you are encouraged to do your own due diligence and consult your licensed investment advisor**
As a Senior Analyst at Common Stock Warrants (CSW) and the primary data analyst, programmer, economic geologist, I have had the opportunity to run many Python simulations and placed our databases within the machine learning environment to find statistical abnormalities and patterns in warrants. This series of posts will focus on how the results of those investigations have led me to find a path to creating a rolling basket of securities that require far less capital to start trading with warrants. All of this is prefaced with an in-depth exposure to the trading methodology of Dudley Baker and CSW which seeks to secure thousands of percent in gains in longer term scenarios with warrants.
Return to the first part of this article series if any of the terminology or discussion in parts of this series needs clarification.
Continuing where we left off, we have now identified our targets based on the methodology that has been discussed. The next stage is to spend some money and roll the dice with a statistical advantage in our corner.
Revisiting the previous list of targets to get the associated entry prices from the results.
- NFINW – Netfin Acquisition Corp – $1.08
- TOTAW – Tottenham Acquisition I Limited – $0.19
- SAQNW – Software Acquisition Group Inc – $0.97
- KCAC.WS – Kensington Capital Acquisition – $0.8956
- CFFAW – CF Finance Acquisition Corp – $0.95
- FPAC.WS – Far Point Acquisition Corporation – $0.93
- SOAC.WS – Sustainable Opportunities Acquisition Corp. – $0.8999
- FTACW – Federal Street Acquisition Corp III – $1.45
- NBACW – Newborn Acquisition Corp – $0.138899
- ALACW – Alberton Acquisition Corp – $0.09
Each of the warrants is executed through a terminal at Interactive Brokers or a similar provider based on a 300.00 allotment to each of the 10 warrants in the basket. (LIMIT ORDERS are absolutely required and should at no time be omitted in the purchasing of warrants, if you are unsure of how to set the limit on your transactions please contact your investment advisor for assistance.)This is a simple calculation of 300.00/CPS for the specific resultant number of shares. While the basket was pre-determined, the research on each company was still performed to shed light on any unseen aspects that might raise a late stage red flag. In this if a company had already announced a merger, they managed to stay in the basket due to a myriad of other factors.
While this is best shown with the assistance of charts, let us first notice that the list is completely SPACs, but is that all you see? My observation of the basket shows that while they all share the expected “Blank Check Company” structure, they do not share the intended targets of their mergers or acquisitions. Inherently this provides a diversification even though they share similar structural characteristics. A red flag for me at this point would be all technology related SPACs or the like which are contrary to most concepts of diversification in a basket.
At first glance this list was random but when you are developing the systems themselves there is always a different understanding of how the system was achieved and the underlying data that formed the conclusions ,and in this case, the inclusion into this basket. Those of us that design and program the conditions in a system are deeply exposed to tens of thousands of data-points and the associated research that accompanies them, this is extended in the workflow where those data-points must result in equations and functions with expected results. Luckily for us, my specific research on this topic was conducted prior to the decision to write this up for consumption and that allows for quick analysis of completed research.
The target prices included with the companies while somewhat varied, all had opportunities to enter the trade at the determined entry price and for the sake of uniformity, no changes were made to capture the marginal amount lower on some transactions that would have been present when executing the trades.
While the next article in this series will focus on the outcome of these trades, there are minor things to still discuss. The primary item to discuss is the exit time-frame as everyone knows that 99 percent of trading the market is timing and choosing your entry and exit points. We did determine our entry price from the python calculations, but do we hold for the whole 10 days the whole basket? In the scenario where a basket is the portfolio goal, there should be the intention of holding for the expected period of time, however, throughout this article series I have alluded to situations that would make that assessment change. To be more specific, there are situations where we will find the explosive response to news driven events is short lived or in some cases is actually bad news. If you find yourself with a warrant in pharmaceuticals or biotechnology this can be exceptionally important as those news events can be the reveal that the clinical trial failed, or the technology was unsuccessful. In each of those situations, an active investor will look for strategic exits that capture the gains or reduce your risk exposure significantly as the case may be. (e.g. if one of your basket participants announces a merger or acquisition during the time you own it and explodes 100, 200, 700 percent, those positions can and likely should be sold to capture gains for the basket but the bulk of the basket would remain in play until the expected end date, potentially replaced by the next security that had been determined by our selection.) Using the alert system within your brokerage terminal can prevent the feeling of needing to watch this unfold in real time and I find myself setting alerts for 15 percent gains and 10 percent decreases in valuation. Personally, I like to watch the explosive events happen and monitor closely but that can be a time sink and the alerts help to defray the need to sleep at the keyboard as most day traders could attest to.
In the next article of this series we will take a deeper look at what happened to each of these securities with the assistance of charts and results. The content in the next article is slightly more dense as it covers the arbitrary prices from entry to exit on each of the 10 warrants in the basket and their respective events during our time-frame
What’s the catch Jeff?
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Quick Links to the rest of this article series as they are posted are available below: