The NKLA MeltUp Is STILL Melting Up
Dear Subscriber,
In after-market trading, NKLA is trading at $90 tonight. It closed at $72.50
I know many of you are in total shock as you open your brokerage account and see another comma in your account value or, for many, $100k-300k-$500k. I know that our managed accounts are up 450% just from our NKLA positions since late April.
Action to Take: I am NOT your portfolio manager, but if you took our advice, you now have 2X your original investment back in profits/cash, you own your warrants for $0 and your shares are free and clear and you are "playing with house money."
Now--what to do with positions that for many are up 650% from an entry in late April and mid-May?
Answer? Prepare yourself for the TSLA/TLRY/BYND melt-up scenario I talked about last week.
As I said last week, NKLA was looking like a cult stock on Friday but officially Nikola became a full blow cult stock on June 8, 2020 and is now the second coming of Tesla (TSLA).
And you thought I was exaggerating in our promotion?
Turns out I was UNDER promoting!
What does that mean?
READ CAREFULLY: It means that just like Tilray's melt-up run from $20-300, Beyond Meat's run from $40 to $280, Space SPCE from $10-$150 and the granddaddy of them all TESLA $138 to $900, NKLA has that chance to parabolically run to $120-$150-$200 and as much as $300.
We should expect a run to $120-$130 at the open--THEN is either has a pullback for a bit and then if flooded with market orders on the "buy the dip" from FOMO millennials RUNS another parabolic run to $180...OR IT RUNS out of gas and buyers and the profit-taking starts a retracement back to the $90 open or open high and then craters.
The NKLA Parabolic Run Today-OMG--that is what we call a "Viagra Chart"
Here is the TLRY Follow Thru from $40-$60-$70-$120 then BOOM $300
I am NOT saying that is what is going to happen--but YOU AND I need to be intellectually and emotionally prepared for a true "parabolic" run because NKLA is now an official Millennial Monster stock.
We also have to be prepared that today's PARABOLIC move WAS the move and we want to PROTECT the profits in our $15-$22-$30 cost basis shares
Action to Take: For my accounts, I am putting a 10% moving sell stop under the open price (which means your broker automatically raises the sell stop IF we get another parabolic move up. IF you don't know how to do this, ask your BROKER, not us!)
KEY POINT: FOLLOW the 5-Day Moving Average!!!!
Why?
1) The small real float. Millennials have purchased tens of millions of shares on their mobile trading apps. The stock traded 50 MILLION shares today or about half their 110 million shares. The REAL float of shares (shares that are not locked up for six months) is about 90% of the shares (the NKLA shares). In the last two trading days, 120% of the entire float has traded but what really happened is the real unlocked float--@20 million shares--turned over 5 TIMES with swing trades, day trades and "long time" shareholders.
This is the VERY same M.O. for EVERY Millennial Monster stock--they trade 8-10X of their actual float after the IPO.
2) It is VERY expensive to short the stock. All the big brokers are paying clients 35-40% interest to LOAN your shares so they can sell them short to short sellers. But why would I loan my shares if I risk getting them back a LOT lower?
3) The options market makers short the shares (on margin) when they sell a long option to hedge their position. They buy the shares (on margin) when they sell a put option to hedge their position. THIS forced buying on put options has to be squared up at the end of the day.
In short, these parabolic moves are the MECHANICS of the stock, margin, and options markets--they have NOTHING TO DO with "price discovery." THESE parabolic moves happen because, in the simplest explanation, there are more marginal buyers (aka price-insensitive buyers with market orders) than available sellers.
When this happens, the market makers for NKLA shares and call options simply raise theit "ask/bid" up for as long as someone is throwing a "market" order into the system. The "melt-up" happens when people sitting on the sideline see this melt-up they throw tens of millions of FOMO market orders in because THIS IS THE FIRST STOCK THEY EVERY BOUGHT in their Millennial life and they are little baby lambs being brought to slaughter.
Key point: WHEN the market orders dry up, and the bid drops, the ask side eventually drops because the sellers become "at market" sellers. Now the market makers DROP the bid, the bubble bursts parabolically until market orders show up.
THEN the MMs (market makers) see the market sell stops on their level 3 screen and then clean out the market sell stops at ever-lower prices.
"Well, Clarice… have the lambs stopped screaming?"
Key point: THIS IS WHEN THE Buy the Dip Market Orders run dry--THAT is the end of the parabolic straight line up price!
My best guess? Lightning rarely strikes twice. We got one parabolic rise today. ODDs are high that AFTER the surge in the morning, the FOMO market orders dry up and we got back to the open price and then THEY freak and we go back to $72 close today.
But YOU have to be prepared for an outlier day--cuz NKLA is SUCH a cult stock now. Cult stock means you would buy the stock even if it ran over someone on Park Avenue with a Nikola Class 8 truck ok?
IF you don't care about this shizzle, turn off the TV. But if $20-$50-$100k of profits matters to you, you gotta print this out and look for (please Lord) ONE MORE parabolic move.
Set your wake-up call with me a 6am PST if on the West Coast.
THEN wait--IF NKLA reverses off another parabolic straight-up run, you put automatic sell stops 5% under and let the market either take you out as the move upward and reward you more.
NOTE: I will keep my NKLAW warrants and exercise them and hold those shares forever.
IF we go parabolic tomorrow and don't reverse, REPEAT THIS PLAYBOOK WEDNESDAY.
The MORE UP NKLA goes UP, the gravity will bring it faster down when it breaks.
It is NOT a question of IF the stock breaks, it is a question of WHEN it breaks, OK?
Stocks go up about 7.5% a year including dividends. Many of you are sitting on 100 YEARS of total profits OK?
These moves are like being in the Twilight Zone TV episode--except they are very very real.
Play it smart. You will NOT sell the absolute top. The idea is not to "prematurely evacuate" your position and WAY too early and leave 50-100% higher gains on the table by being SMART.
NOTE: WE are counting on the "dumb FOMO money" to throw lighter fluid on this stock and take advantage of their ignorance.
The NKLA Warrants
Here is the explanation from NKLA--I am getting with the IR leader tomorrow to get more data. The short answer is because they are created as European style warrants we can't do a cashless conversion (where we submit them for shares at the actual warrant plus underlying stock price) they trade significantly below actual intrinsic value.
I am selling my warrants with a moving sell stop and KEEPING my original $15 shares (that my cost basis is much lower on because of selling call and put options for premium).
My advice is IF you want to convert your warrants...sell enough to get your cost to zero and then convert now and hold those $11.50 shares (which will go into your account at the current price!)
NKLA:"The warrant gives the holder the right to purchase a share of the underlying security at $11.50 for five years and can be exercised 30 days after the close of the business combination.
But there is a caveat to this: If the stock were to close above $18 for 20 out of 30 days following the business combination -- which it obviously will-- the company can redeem the warrants for what essentially amounts to .01. If called for redemption, the warrant holder can 1) allow it to be redeemed (no one would), 2) sell the warrants on the open market, or exercise the warrant and buy shares.
The challenge for some is there is no guarantee it can be a cashless exercise. Selling on the open market is selling, but it is different than a cashless exercise as it may not obtain the intrinsic value of the warrant.
The warrant is structured like a European settlement option. Thus the warrant can't be exercised early and the discount (intrinsic value) immediately realized.
Well, that's easy, right? Head over to the options market, buy an in-the-money put on VTIQ, buy the warrant, and arbitrage the difference.
Market makers aren't that stupid. First, you'd have to go out to July for the warrant lock-up period. Then, you'd want to go into the money with a put option (those are the highest strikes) to eliminate all risk while still allowing for upside.
But here's the rub: The put premiums match almost penny for penny to the discount. In other words, your arbitrage opportunity disappears with a simple long put.
So, I'll short the stock? Well, good luck getting a borrow or not called early. Oh, and don't forget the enormous interest rate being charged on that borrow. Do you know what it amounts to through July? Yup, most of your arbitrage.
From NKLA
Warrants
1. If I have 1,000 VectoIQ warrants, will I have the right to buy 1,000 shares of NKLA stock at $11.50?
Yes. The warrants that trade under the ticker VTIQW will remain outstanding following the business combination and trade under a new ticker, NKLAW (1 VTIQW = 1 NKLAW).
2. What is the strike price of the warrants?
Warrants have a strike price of $11.50 per share. Each warrant can be exercised for 1 share of VTIQ (or NKLA after the merger) at the $11.50 exercise price.
3. What is the term of the warrant?
Each warrant has a 5-year term from the closing date of the merger, subject to the company’s redemption right, which allows Nikola to redeem outstanding warrants (at the exercise price of $11.50) if its common stock trades at or above $18.00 for 20 days out of 30 trading day period ending on the third trading day prior to the date the combined company gives notice of redemption.
4. When can I exercise my warrants?
Warrants may be exercised during the exercise period. The exercise period begins 30 days after the merger has closed, and will expire at 5:00 p.m., New York City time, five years after the completion of a business combination or earlier upon redemption or liquidation.
5. How can I exercise my warrants?
Warrants may be exercised through your broker, or by contacting the warrant agent:
Continental Stock Transfer and Trust Company
One State Plaza 30th Floor
New York, New York 10004
Final Note: This has been life-changing wealth creation for many of our thousands of subscribers. The early folks have done better than the new.
IF you want to trade options around NKLA to lower your cost basis until the redemption order is alive, join the now 125 members of our All Access group. WHEN the bubble finally pops, we will be SELLING CALL OPTIONS on the final pop and keep that premium as a reward to the brain damage of following NKLA 20-50-70% moves up and down. Here is the secret decoder ring:
https://transformityresearch.com/register 1) Click on the link 2) scroll down to the page to the All-Access membership 3) click on the All Access "SELECT" button 4) Fill out registration info 5) SCROLL down to choose payment (ignore "Coupon Code") insert credit card data 6) click payment button "Register Account" Welcome!
But hey--those are FIRST WORLD problems, ok?
Some 1986 Lafitte Rothchild and St. Emilion wine is flowing tonight in the Smith household.
We will donate 10% of NKLA profits to our Arizona homeless charity because that is what we feel is the right thing to do in such a fortunate circumstance. Then we will book a serious Europe trip next year and put together one of our bi-annual Wine-Dine-Stocks group adventures to Argentina's food and wine country for 2021.
Good luck to us all tomorrow--but at least WE ARE ready for one or two melt-ups OR the most likely outcome a melt-up exhaustion top tomorrow and a WICKED meltdown of profit-taking.