Share unlock plays research thread

Research & Analysis
1

So 1 play that seems to have a reasonably high winrate are share unlock plays. And this is not limited to just SPACs, for example, RIVN took a massive shit when Ford’s stake unlocked and news came out that they dumped some shares.

So I have some thoughts as to what qualifies a share unlock as a potentially good play (in order of importance):

  1. Most important - The stock has options available, or is shortable at a reasonable (< 10% APR) borrow rate. If this is not the case, you can stop right here and not invest any more time into it, as if you can’t take a bearish position then there’s no profit potential
  2. The stock at it’s current price is overvalued. Big holders aren’t inclined to dump if they believe it’s undervalued. Bonus points if the company looks like a fraud and/or is on a bankruptcy path as holders will want to dump ASAP. In current market conditions, I think the vast majority of SPACs are worth 0, so this point shouldn’t be hard to check off.
  3. There is not an excessive amount of short interest. If something has a 700% borrow rate, that rate is implied in the options which makes selling calls way less profitable and buying puts way more expensive. And short sellers covering will prevent the stock from diving as quickly. You also don’t want to be in crowded trades in general. For example, right now RDBX has a 900% borrow rate and is at $13. If you look at ATM options for october, a call is about 3 bucks, and a put is 9. Sure, this thing will be at 50 cents by then, but neither selling calls or buying puts at those prices is worth the risk and the potential for a huge mark to market loss in the mean time.
  4. There is a significant quantity of shares being unlocked. The more shares that are being unlocked in relation to the free float and daily volume, the more potential the stock has to fall quickly
  5. The more spread out the big holders, the better as they’ll be in competition with each other to sell sooner. If some private equity fund owns 85% of the company and is willing to hold for another 3 years, then their shares basically aren’t part of the unlock.
5 Likes
2

General rule of thumb is that share unlocks occur 180 days after IPO.

SEC filings may indicate an earlier condition for selling, such as if the stock trades above X price for X amount of days, etc.

1 Like