ESSC - Evolving potential Gamma Squeeze similar to IRNT

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I’ve decided to open a new thread for this play to better track it in the coming days and to make the information a little easier to digest.

ESSC - IRNTwo.0?

ESSC is a SPAC that is taking a somewhat unusual path to merger. A vote occurred and during that vote a large amount of the outstanding shares were redeemed. At the same time, the merger date was pushed back to 2022-02-16T05:00:00Z. This means that it’s left with an extremely tiny optionable float for over two months.

After redemptions, ESSC has been left with just 340,000 shares in the float. Meaning, that just 3,400 options contracts account for the entire thing. For reference, IRNT had 1,300,000 shares in its float. Another point is that ESSC has not actually merged yet, while IRNT had. This means that there is no impending PIPE unlocks or dilution on the horizon until February.

Let’s look at the options chain at the time of posting:

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The current ITM OI is at 53% of float on ESSC. The $12.50 strike however, puts the ITM OI if it were to be crossed at 311% of float. This chain is already set up to run and it is in our opinion that it will probably do so in the coming days.

For complete transparency, this setup is better than IRNT but it is missing a key thing: sentiment. IRNT ran again because the sentiment had been drummed up enough to run it once. What we called on the second run was that a new setup had been created, the original authors of the DD had just exited their positions too early and the chain was left with enough OI to power a second run, which it was going to do on its own within a few days.

So knowing this, there is a universe where ESSC doesn’t do anything. We’re in this early and watching it, similar to how we were before IRNT and before BKKT. But for every one of those plays, as we all know, there are several more that don’t do anything. So if you choose to play this, take responsible positions, don’t FOMO, and wait for proper entries.

I’m going to try something new with this. This thread is going to be locked upon creation, which means that only upper-crust members can contribute to it. All posts in this topic I ask be informational about the play

I’m going to open a Chat on this topic and I ask that all questions related to this play be asked and answered there. If we do it right, I think this may be a really solid method of managing these threads since we can directly move useful contributions from members to the thread should they need to be added. ← Don’t pay attention to this yet, looks like closed threads can’t have chats. Uno momento.

As I stated earlier today, this play is my top watch at the moment. As always though, I’m playing multiple things and I definitely encourage everyone to still engage in the other topics in this form as putting all your eggs in once basket is retarded. I will keep this thread updated with thoughts and analysis and I ask that the upper-crust members do the same.

We might just have to set the table in Valhalla once again.

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Looking at the Backstop Investors conditions, it seems that technically the float is actually around 3M shares (unless I’m incorrectly understanding the time stipulations). The conditions were:

‘’the Backstop Investors agreed (i) to maintain a “net long” position and not seek redemption for an aggregate of 2,923,974 public shares of East Stone from the period beginning on the trading day immediately prior to the Special Meeting through the end of the trading day on which the Special Meeting is held, and from the period beginning on the trading day immediately prior to the Business Combination Special Meeting through the closing of the Business Combination, and (ii) to vote such shares in favor of: (a) the Extension Amendment Proposal, and (b) a proposal submitted to East Stone’s shareholders to approve the Business Combination.’’

I’ve added emphasis to the above section. It seems that they were required to maintain their net long position for the vote, and then they are also required to have a net long position during the Business Combination period. Given that, it seems like the Backstop Investors could have sold all their shares (or are still capable of selling all their shares) at any point after voting for the merger. And as long as they carry sufficient options to purchase the shares back before the business combination, they don’t need to (directly) hold those shares from now until then. Looking at Webull, I see a little less than 200 ITM options with expiry past February 2022, so either they sold and the position is unhedged, or they still own the majority of their shares.

What does that mean? If they are holding all their shares, it just means we have really low float until the Business Combination period is over (so maybe volume comes in and the prices goes crazy with the gamma squeeze, per the above). If they sold their shares, the float is much higher than we originally considered but there will be a huge catalyst to drive the price higher as we close on the Business Combination date and all those shares need to be acquired by the Backstop Investors per the agreement. What has actually happened may be somewhere in the middle, but this is just something to keep in mind during the play.

Edit: Just to clarify for others that are reading this late, the thinking has evolved since this post:

  1. it seems that one of the backstop investors sold almost 850k shares of their position
  2. since the outstanding shares are about 7M*, anyone owning more than 700k shares would be subject to insider restrictions on selling the stock, including restrictions on swing/short term trades. It’s possible this is why the other backstop investors have not sold their position, since they will be required to buy it right back within a couple of months.
  • And just to clarify, that 7M includes all the founder shares that are subject to lockup and cannot be traded on the market.
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Wouldnt this section through the closing of the Business Combination imply that those shares are locked in place until after the merger is complete? This would mean that the float is truly as low as it says until Feb when the shares are unlocked (or, more specifically, can be sold per the contract).

Net/net - float is tiny imo.

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Per the agreement, that period starts the trading day before the business combination special meeting (which is not the same as the first special meeting).

Maybe this helps better explain the way I’m seeing this:
The Backstop Investors agreed (x) to maintain a “net long” position and not seek redemption for an aggregate of 2,923,974 public shares of East Stone from:

  1. the period beginning on the trading day immediately prior to the Special Meeting through the end of the trading day on which the Special Meeting is held, and

  2. from the period beginning on the trading day immediately prior to the Business Combination Special Meeting through the closing of the Business Combination,

Edit: see my edit to the original post above. Due to the low outstanding shares, BI’s should be considered insiders, which (should) change their ability to swing trade the stock (Section 16b, I believe)

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But either way, if they don’t own the shares currently, the same amount would have to be purchased by the day before the vote correct? My thought would be they have to hold at least a significant portion of them, otherwise that much buying pressure (approximately 2.9 million of the available 3.2 million give or take) would drive everything up significantly. I would think they would have wanted to purchase them closer to the original $10 price. I could be way over simplifying this and missing it completely but it seems like a win either way… either they have them and we have about 300k float, or they don’t and they have to purchase up to 90% of it. I would say to play it safer is to either have shares or calls into March. But again let me know if I’m way off base, still learning. Also, apologize if my numbers are off I’m short on time and that’s an estimate.

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They owned the shares by the time the vote extension vote was over, and they are required to own the shares by the day before the Business Combination special meeting. So, you are mostly correct, except they don’t need to buy the shares close to $10 (since they already have them), unless you meant buy them back. But yes, anything they sell they have to buy back, so if they sell too much, it could be difficult to buy back all the shares they need at a reasonable price. Also keep in mind these are four or five different entities, so they may do things differently, depending on what they think is best in their own self interest.

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Yes buy them back is what I meant. Thanks for the clarification!

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I may reenter tomorrow but I could not pass almost 70% gains from last week entry. For this I’m out lol

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This is anecdotal and may not be indicative of anything, but it did catch my eye on ESSC. I trade using Schwab, any time I place a buy order for shares, even for just 1 share, I receive an error saying my account has insufficient funds. I find this odd as I have sufficient settled funds to make the purchase, and when I make another buy order for any other ticker it goes through with no issue. I can place orders for the warrants and rights with no issues as well.

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That’s interesting. I use schwab too, but only holding calls. I’m going to try buying a few shares tomorrow and see what happens.

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I had no problem buying shares before the 14 dollar rug pull…

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Neat point about the locked up shares not being available for lending:

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Just noticed they filled a 10K amendment.

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001760683/000121390021063720/f10q0921a1_eaststoneacq.htm

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Just saw this too. I think it’s actually a common amendment saw this exact thing with other spacs. Something about shares being marked as permanent that should’ve been marked as temporarily restricted.

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From what I understand they included the redemption from the special meeting and adjusted the cash on hand from trust.

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Note on Warrants, and why they are cheaper then previous plays. Multiplier for ESSC warrants is 0.5 as opposed to 1 in case of AGC/GRAB.
Meaning that one warrant is good for half a share as I understand.

Keep this in mind when planning your entry/exit strategy. Percentage-wise it should move similar to other warrants, but don’t expect similar prices (when comparing warrants prices to price of underlying) on it as we’ve seen in case of DWAC for example.

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Really appreciate the extra research on this.

Your reading is correct in my opinion, they are not prohibited from selling their shares from between now and mid February. Being that they’re institutionally held shares, they’re not generally accounted for in how we calculate the “free trading float” though but are absolutely something to keep in mind. I’d even say something to further keep in mind is that almost all these plays are not exactly whatever float is advertised. IRNT for instance probably had a decent amount more shares trading than the 1,300,000 we knew about.

The reasoning for this is that there are ways around lockup provisions. I’ll let someone smarter than I go into it at some other time, but essentially, you’re always going to end up with more free trading shares than you think.

However, in this case I think we’re relatively safe and here’s why: They are required to buy them back. They can’t wait until after the merger when the float becomes larger, they literally need 100% of the shares they currently own the day before the vote goes off. So theoretically, if they were to sell here, they’d tank the stock… then they’d have to buy all the shares they sold back, raising the price again. At the end of the day, they’d likely have a marginal gain at best. Now, if this actually runs it becomes a slightly different story, but I think that’s a “cross that bridge” sorta thing.

In this scenario I think they’d be more likely to short with what is availiable considering they are holding shares themselves. Shorting wouldn’t add any additional shares to the free trading float, but would simply add ~2.9M worth of sell volume in small increments.

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Any thoughts on why volume is so low today? Looks like the asks aren’t budging.

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