ESSC - The 3 Peat? Watching a potentially evolving gamma squeeze

[Conqueror]

Oh hey guys, we’re back.

Given the recent announcement of another vote on the extension of the merger, we’ve reviewed the filings to catch up on the progression of this setup.

Catching Up

For a quick overview of the most recent filing, you can see @tedro’s comment here:

ESSC - Evolving potential Gamma Squeeze similar to IRNT

Here’s my summary of the filing https://www.sec.gov/Archives/edgar/data/0001760683/000121390022004594/pre14a0122_eaststoneacq.htm ESSC Special Meeting scheduled for February 24, 2022, at 10:00 a.m. Any shareholder can listen to and participate in the Special Meeting live via the Internet at East Stone Acquisition Corp. 2022 Special Meeting The termination date is February 24, 2022. 7,168,605 Ordinary Shares of East Stone outstanding. The Special Meeting will be held for the purpose of considering and voting on the following proposals: Proposal No. 1 — Extension Amendment Proposal — To amend East Stone’s amended and restated memorandum and articles of association (the “ Memorandum and Articles of Association ”) to extend the date by which East Stone has to consummate a business combination (the “ Extension ”) from February 24, 2022 to August 24, 2022 (the “ Extended Date ”) (the “ Extension Amendment Proposal ”); and Proposal No. 2 — Adjournment Proposal — To instruct the chairman of the Special Meeting to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, there are not sufficient votes to approve the Extension Amendment Proposal (the “ Adjournment Proposal ”). (the “ Business Combination Agreement ”), by and among East Stone, JHD Holdings (Cayman) Limited, a Cayman Islands exempted company (“ JHD ”) JHD Technologies Limited, a Cayman Islands exempted company (“ Pubco ”). Xiaoma (Sherman) Lu, East Stone’s Chief Executive Officer and a member of its board of directors, has received an offer to serve as President and Vice Chairman of Pubco and as a member of Pubco’s board of directors following the consummation of the Business Combination. Yellow River MergerCo Limited, a British Virgin Islands business company and a wholly-owned subsidiary of Pubco (“ Merger Sub ”) Navy Sail International Limited, a British Virgin Islands business company, in the capacity as the Purchaser Representative thereunder. Chunyi (Charlie) Hao is the sole officer and director of Navy Sail International Limited. Navy Sail International Limited is indirectly owned by East Stone’s directors Chunyi (Charlie) Hao, Xiaoma (Sherman) Lu, along with certain other individuals Yellow River (Cayman) Limited, a Cayman Islands exempted company, in the capacity as the Seller Representative thereunder and the sole holder of JHD’s outstanding capital shares (the “ Primary Seller ”) Each of the holders of JHD’s capital shares that become parties to the Business Combination Agreement after the date thereof (each individually, a “ Seller ”, and collectively with the Primary Seller, the “ Sellers ”) Double Ventures Holdings Limited, a British Virgin Islands business company, solely with respect to Sections 10.3 and Articles XII and XIII thereof, as applicable (the “ Sponsor ”). Chunyi (Charlie) Hao is the sole officer a…

For a long form DD on the setup you can see my “Expanded Signal” from run #2 here:

ESSC - Fully Expanded Gamma Squeeze Signal

Heading into this week, we are anticipating the ESSC play to gain a significantly greater amount of attention. Because of this, we’re releasing this updated and expanded signal fully outlining the research behind the play. Overview The Setup This play is classified as a low-float gamma squeeze. This means that the stock has an unusually small amount of free trading shares and further it has less than the usually required amount of shares to have options. In this case of ESSC, the stock has 1.1M shares trading and the ITM OI accounts for 332% of those shares. There is also evidence that the float is actively shrinking to 340K shares (again) making this play not only even more unique, but potentially even more explosive. This signal will lay out the specifics of the setup, including how we arrived at our calculation of the float and our analysis of the OI and the plays potential. What is a Gamma Squeeze? A gamma squeeze is a type of squeeze caused by delta hedging from options market makers. When a high amount of in-the-money (ITM) call options are sold on a stock, options market makers will “hedge” (acquire shares at market) to offset their risk. Normally this process is uneventful, however, should a stock acquire enough OI in comparison to it’s free-trading float, the act of hedging can create substantial buying pressure and a cascading affect that leads to a dramatic increase in the price of the underlying. Common examples of gamma squeezes are GME in January 2021, AMC in June 2021, SPRT in August 2021 and IRNT in September 2021: [GME in January 2021] The Company ESSC is a pre-merger SPAC. This means that they’ve found a target for their merger and are in the process of completing it. Somewhat unusually they overshot the amount of time they had to fulfill their purpose and merge with a company, so in November, they requested an extension from their shareholders which was approved and their deadline was moved to mid-February 2022. Outstanding Public Shares Before we work down to our float count, we need to establish how many redeemable (free trading) shares there are. To this we look to the SEC filings which state there are 13,800,000 shares that are freely publicly trading: [image] Excerpt from: https://www.sec.gov/Archives/edgar/data/0001760683/000121390021059515/f10q0921_eaststoneacq.htm The Redemptions During the extension meeting, shareholders of ESSC opted to exercise their right to redeem a substantial amount of the company’s shares. When shares are redeemed in a SPAC, shareholders essentially “give back” their shares and their value is returned to them from the company’s trust. The shares that are redeemed are cancelled and no longer exist. This means that the number of outstanding shares, and thus the float, is lessened by the amount of shares redeemed. In the case of ESSC, shareholders redeemed 10,534,895 of it’s 13,800,000 outstanding shares leaving 3,265,105 shares outstanding: [image] Excerpt from: https:/…

Our Analysis of the Filings

To sum it up briefly, we believe everything has remained the same.

1. The float is still somewhere between 340,000K and 1.19M shares.
2. We don’t expect any further dilution as everything still points towards the remaining BIs being incentivized to hold.
3. We still believe SeaOtter will have to reacquire their position before the Business Combination Meeting. However, they also may still have to reacquire before the extension meeting as well to prevent those shares from being redeemed.
4. The most recent filings provide founders shares to the BIs which cannot be sold, but there is language to prevent them from selling them anyway so

This extension meeting makes this setup even more interesting considering it essentially means that this ticker will remain a hyper small float optionable stock for the foreseeable future. The reason for the extension was I think correctly highlighted by @The_Ni, which is essentially that there is some regulatory red tape that they don’t anticipate being able to clear before the merger.

The Chain

Currently ITM OI rests at 29% of float (using 1.19M), becomes 58% over the 12.5 and the full chain is 104%.

While there are the beginnings of a ramp, and the OI will undoubtedly open higher tomorrow. There presently isn’t a prime setup at the moment. I would expect some further consolidation and accumulation before anything would come of this. For this reason, as of this posting, this is only a watch. We’ll begin covering the OI updates in this thread again and should a meaningful setup develop, we’ll acknowledge it here as well.

So with all of that said, if you choose to take part in a potential 3rd run, don’t over leverage yourself and don’t rush to buy your options right here or you’ll just be running up the entry prices for each other and will get shit fills as a result. Slow and steady wins the gamma squeeze.

Reminder

Remember, things are a bit different this time around. Members of Valhalla are actively discouraged from discussing our plays and DD on other forms of social media such as Reddit and Twitter. These plays develop organically on their own and we’re just along for the ride.

[Sahmyool]

Marking my place in history as the first comment.

[holi]

for the sake of my own sanity and to ensure my neutrality, I’ll sit this one out

[jfk_sabb]

Thanks for the summary, Conq! Will keep watching alongside everyone & probably throw a small gamble at it (1K > 1MM starting early).

[Novasagoodpup]

Watching closely and looking for entry at a much lower price. Currently the $10c are at around .80. I am bullish on our new approach of keeping our cards close to the chest on this round. Fuck the Reddit wannabes, Valhalla Fo lyfe.

[Kevin]

OI accumulation on calls and puts

7.5 strike

10 strike. Calls have been loading up recently. Puts have been slowly accumulating as well.

12.5 strike. Calls ramping up.

15 strike

12/16 12.5c gang is still in

[Josh]

Shares available to borrow dropped a good amount this morning in IBD
https://iborrowdesk.com/report/ESSC

[Machetephil]

A couple of important things to note from the January 31, 2022 filing. First, the Backstop Investors agreed in November 2021 that 974,658 shares would not be subject to redemption, for a total of 2,923,974 shares. In exchange for that agreement, they received 135,000 founder shares and a commitment to receive an additional 264,996 at the closing of the merger.

However, on January 31, 2022, the Backstop Investors entered into new agreements to support the extension from February 24, 2022 to August 24, 2022. Under the terms of those agreements, the Backstop Investors have agreed not to redeem 600,000 shares, for a total of 1,800,000 shares. To me, this means that the Backstop Investors can request redemption of 374,658 shares each, for a total of 1,123,974 shares.

So, if the extension if approved on February 24, 2022, then from February 24, 2022, to at least May 24, 2022, the float could be even further reduced depending on whether the Backstop Investors redeem some portion of the 1.1 million shares they are permitted to redeem. We will not know that until after the February 24, 2022 meeting.

This is not even taking into account any redemptions that may be submitted by shareholders in advance of the special meeting. The end result is that this float, which we thought was as little as 1.19 million could be reduced even further after 2/24.

Once the meeting occurs, we will know much more about the float because redemptions will have been completed on or shortly after the 2/24 meeting.

[Behemoth]

Thank you @Kevin for the OI updates.

[Machetephil]

Also, regarding the redemption issue, since I posted a min-FAQ on the last one, I wanted to add to that here:

Q: If I am still holding shares, can I redeem them prior to the February 24, 2022 meeting?

A: Yes. You must deliver your notice of redemption (or have your transfer agent/broker do it) no later than February 22, 2022, which is two business days before the meeting. I strongly recommend doing this earlier to be safe and, in any event, by February 21, 2022 (which is the first business day after February opex btw).

Q: What happens if I elect to redeem my shares?

A: If the extension is approved, you will receive $10.26/share from the trust account so long as there are sufficient funds in the trust account to pay.

Q: What happens to my shares if the extension is not approved?

A: It depends on why the extension isn’t approved. There are three reasons why this could happen: (1) they don’t get enough votes to approve the extension (unlikely since the Backstop Investors wouldn’t have entered into these new agreements if they weren’t prepared to approve the extension); (2) business combination occurs prior to the special meeting (again, unlikely since the founders wouldn’t have agreed to give up so much stock if they thought they had a chance of completing it by 2/24); or (3) the special meeting is adjourned to determine whether the business combination was approved. Adjourning a meeting doesn’t remove the 2/24 merger deadline, however, so if they adjourn and the votes total up to not approving the business combination, that’s the end of ESSC. So basically all 3 of these possibilities are unlikely for largely the same reason: the Backstop Investors, Sponsor and Founders are way too deep into this now to permit the extension to fall through.

But the answer to the question is that, if the extension is not approved and the business combination does not occur by 2/24, ESSC will wind up, distribute out the money in the trust account to all shareholders, and dissolve.

Q: Can I redeem my shares after the extension is approved?

A: Yes. You just have to submit a redemption notice two business days prior to the business combination meeting.

Q: When will they hold the new business combination meeting after the merger is approved?

A: We don’t know. The documents suggest the parties have every intention of completing the merger by May 24, 2022 as there are penalties built in for the Founders if it doesn’t, but we won’t know unless and until a notice of special meeting is filed.

[Degenerate]

Thank you for elaborating!

[digdug01]

This is my first time looking at calls. Inplayed shares the last time around. What calls are we looking at this time around?

[Kevin]

Technically this isn’t a ‘play’ yet as we are still watching the options chain accumulate first before confirming its viability. Buying any calls right now is pretty speculative.

But if you must, it looks like the 02/18 chain is most popular, but you can always buy longer dated to reduce your risk exposure.

However remember that the extension is not yet confirmed.

[digdug01]

Thank you.

[lu1]

But the vote for extension is on 2/24 right? So atleast for 2/18 opex the float stays the same.

[Machetephil]

It doesn’t necessarily stay the same, but it isn’t expected to significantly change between now and 2/18 unless something unexpected occurs (large early redemption, BI selling shares, etc.).

[Kevin]

my understanding is that ESSC will still try its best to complete the merger, and this extension vote is a precaution in case they don’t meet the timeline.

So there is a chance for the merger to occur this month and the extension vote would not be necessary, but that chance seems to be getting less and less with each passing day

[Speckled_Mongoose]

Just to remind everyone this stock had significant intraday price drops FOUR separate times in the last 2 months.

There was the drop in the beginning of December where the stock marched from $11 to $14, then dumped back to like $10.50 by EOD. This was the action that put this stock on most people’s radars.

There was the infamous $26 drop that killed ESSC #1.

The third drop from like $14.5 to $10.5 that got eaten back up almost immediately.

Then of course the final intraday drop that killed ESSC #2.

Obviously this was with the old float numbers idk what the float will look like after the meeting.

Stock go up and down, but the speed at which this stock dumps is quite alarming. We’re talking quick significant drops in price four separate times all intraday. Drops that likely blew through many stop-losses that people had set.

Obviously we are closer to NAV right now than we were during the drops I listed. It could work this time. I’m not against playing this again. Just be careful.

[tcoop]

Interested to see OI tomorrow!

[Aesthetic_Investor]

I’d say with the current price being $11.07 the downside risk being only around 8% till NAV shares look extremely enticing. The sentiment in r/spacs now has changed quite a bit to where people are starting to buy in.