Secondaries (Capital Raises)<\/strong><\/h4>\nAn IPO, initial public offering, is when a company\u2019s shares first become available to the public.<\/p>\n
They can always add on more shares to that IPO by doing a secondary.<\/p>\n
A secondary offering is when a company decides to utilize their stock price to raise additional funds for the company\u2019s operation by offering out additional stock.<\/p>\n
Now, let\u2019s think about what secondary offerings mean from the perspective of supply and demand.<\/p>\n
Demand is coming into the stock, and some of that demand might be from the short squeeze. You also have a limited number of stock supply, which is what we call the stock\u2019s float.<\/p>\n
Now, when you do a secondary offering, the overall stock float will increase.<\/p>\n
If you\u2019ve got the same amount of demand, and all of a sudden, you\u2019ve got much larger supply because the float is increased, that stock will most likely go down.<\/p>\n
<\/p>\n
AMC\u2019s Secondary Offering<\/b><\/h3>\n
That is exactly what happened to AMC.<\/p>\n
Many people don\u2019t realize that a secondary offering actually caused the top of AMC.<\/p>\n
AMC had that crazy short squeeze on June 2. It was actually the second short squeeze in the name.<\/p>\n
In one day, it went from about $35 to $70+.<\/p>\n
Then they announced a secondary offering the next morning, and the stock went all the way back down to $38.<\/p>\n
Something to keep in mind regarding a lot of these companies\u2026why were they so heavily shorted to begin with?<\/p>\n
They\u2019re usually strapped for cash, don\u2019t have strong balance sheets, and possibly even lose money year over year.<\/p>\n","protected":false},"excerpt":{"rendered":"
A short squeeze is forced buying from short sellers who are already in the marketplace. A short seller is someone who is trying to profit from a stock going down. When buying a stock, the worst thing that can ever happen is that you lose 100%\u2026 but in short selling, you have unlimited risk. Stock can go up hundreds or thousands of percentage points \u2013 especially if the stock is getting squeezed by forced buying from short sellers. The GameStop Squeeze Short squeezes became in fashion earlier this year in January, with the WallStreetBets Community focusing first on GameStop. GameStop had a short float, a short interest of 140% of the outstanding shares. Due to naked short selling, hedge funds were shorting the stock on the stock without even borrowing it. When the WallStreetBets community recognized that, they all started buying. Their buying caused the stock to go up, resulting in some of the shorts starting to get squeezed. When that happens, you get a virtuous cycle of buying. That\u2019s how we were able to see GameStop go from the price of about $20 to $500 in a matter of days. Other Notable Short Squeezes We also saw short squeezes come into a lot of other stocks \u2013 $AMC $SNDL $BBBY $BB. There\u2019s been a constant rotation of these mini short squeezes we\u2019ve been seeing. GameStop itself has had three major squeezes, AMC had two major squeezes. My team and I now are paying attention to stocks that have high short floats. Anything with a short float above 20% is in squeeze territory. Some of those\u00a0layers of probability\u00a0also apply. If we\u2019re seeing the heavy volume along with momentum coming in, that could be the beginning of a squeeze. Risks in Short Squeezes Being too late A lot of these companies are not necessarily the best companies out there, fundamentally speaking, and it\u2019s probably why they had really large short interests. Once the forced buying is done, there\u2019s a real risk that the stock can go right back down to its more fair, fundamental value. We want to make sure to get in on the ground floor of that squeeze \u2013 getting involved early \u2013 before it\u2019s gone up a couple hundred percentage points, and when the technical setup was still there. If not, you risk buying in too late at too high a price and losing the very next day. Secondaries (Capital Raises) An IPO, initial public offering, is when a company\u2019s shares first become available to the public. They can always add on more shares to that IPO by doing a secondary. A secondary offering is when a company decides to utilize their stock price to raise additional funds for the company\u2019s operation by offering out additional stock. Now, let\u2019s think about what secondary offerings mean from the perspective of supply and demand. Demand is coming into the stock, and some of that demand might be from the short squeeze. You also have a limited number of stock supply, which is what we call the stock\u2019s float. Now, when you do a secondary offering, the overall stock float will increase. If you\u2019ve got the same amount of demand, and all of a sudden, you\u2019ve got much larger supply because the float is increased, that stock will most likely go down. AMC\u2019s Secondary Offering That is exactly what happened to AMC. Many people don\u2019t realize that a secondary offering actually caused the top of AMC. AMC had that crazy short squeeze on June 2. It was actually the second short squeeze in the name. In one day, it went from about $35 to $70+. Then they announced a secondary offering the next morning, and the stock went all the way back down to $38. Something to keep in mind regarding a lot of these companies\u2026why were they so heavily shorted to begin with? They\u2019re usually strapped for cash, don\u2019t have strong balance sheets, and possibly even lose money year over year.<\/p>\n","protected":false},"author":36,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[734],"tags":[],"class_list":["post-58975","post","type-post","status-publish","format-standard","hentry","category-prop-trading"],"_links":{"self":[{"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/posts\/58975","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/comments?post=58975"}],"version-history":[{"count":1,"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/posts\/58975\/revisions"}],"predecessor-version":[{"id":58976,"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/posts\/58975\/revisions\/58976"}],"wp:attachment":[{"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/media?parent=58975"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/categories?post=58975"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.t3live.com\/wp-json\/wp\/v2\/tags?post=58975"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}