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tl;dr - Earnings is gonna be lit!PRPL earnings is tomorrow, 8/13, after hours. Any other date is wrong. Robinhood is wrong (why are you using Robinhood still!?!).
I'm going to take you through my earnings projections and reasoning as well the things to look for in the earnings release and the call that could make this moon even further.
I'm calling $244M Net Revenue with $39.75M in Net Income, which would be $0.75 Diluted EPS. I'll walk you through how I got here
Total Net RevenueI make the assumption that Purple is still selling every mattress it can make (since that is what they said for April and May) and that this continued into June because the website was still delayed 7-14 days across all mattresses at the end of June.
May Revenue and April DTC: The numbers in purple were provided by Purple here and here.
April Wholesale: My estimate of $2.7M for Wholesale sales in April comes from this statement from the Q1 earnings release: " While wholesale sales were down 42.7% in April year-over-year, weekly wholesale orders have started to increase on a sequential basis. " I divided Q2 2019's wholesale sales evenly between months and then went down 42.7%.
June DTC: This is my estimate based upon the fact that another Mattress Max machine went online June 1, thus increasing capacity, and the low end model was discontinued (raising revenue per unit).
June Wholesale: Joe Megibow stated at Commerce Next on 7/30 that wholesale had returned to almost flat growth. I'm going to assume he meant for the quarter, so I plugged the number here to finish out the quarter at $39.0M, just under $39.3M from a year ago.
Revenue Expectations from Analysts (via Yahoo)
My estimate of $244M comes in way over the high, let alone the consensus. PRPL has effectively already disclosed ~$145M for April/May, so these expectations are way off. I'm more right than they are.
Gross MarginsI used my estimates for Q3/Q4 2019 to guide margins in April/May as there were some one time events that occurred in Q1 depressing margins. June has higher margin because of the shift away from the low end model (which is priced substantially lower than the high end model). Higher priced models were given manufacturing priority.
Operating ExpensesMarketing and Sales
Joe mentioned in the Commerce Next video that they were able to scale sales at a constant CAC (Customer Acquisition Cost). There's three ways of interpreting this:
General and Administrative
A Purple HR rep posted on LinkedIn about hiring 330 people in the quarter. I'm going to assume that was relative to the pre-COVID furloughs, so I had June at that proportional amount to previous employees and adjusted April and May for furloughs and returns from furlough.
Research and Development
I added just a little here and straight lined it.
Other ExpensesInterest Expense
Straightlined from previous quarters, although they may have tapped ABL lines and so forth, so this could be under.
One Time and Other
Unpredictable by nature.
Warrant Liability Accrual
I'm making some assumptions here.
Earnings (EPS)I project $39.75M or $0.75 Diluted EPS (53M shares). How does this hold up to the analysts?
EPS Expectations from Analysts (via Yahoo)
EPS Expectations from Analysts (via MarketBeat)
These losers are way under. Now you know why I am so optimistic about earnings.
Keep in mind, these analysts are still giving $28-$30 price targets.
What to Watch For During Earnings (aka Reasons Why This Moons More)Analysts, Institutionals, and everyone else who uses math for investing is going to be listening for the following:
This factor is HUGE. If PRPL guides to higher margins due to better sales mix and continued DTC shift, then every analyst and investor is going to tweak their models up in a big way. Thus far, management has been relatively cautious about this fortuitous shift to DTC continuing. If web traffic is any indicator, it will, but we need management to tell us that.
Warrant Liability Accrual
I could be dead wrong on my assumptions above on this one. If it stays, there will be questions about it due to the drop in exercise price. It does impact GAAP earnings (although it shouldn't--stupid accountants).
Capacity Expansion Rate
This is a BIG one as well. As PRPL has been famously capacity constrained: their rate of manufacturing capacity expansion is their growth rate over the next year. PRPL discontinued expansion at the beginning of COVID and then re-accelerated it to a faster pace than pre-COVID by hurrying the machines in-process out to the floor. They also signed their manufacturing space deal which has nearly doubled manufacturing space a quarter early. The REAL question is when the machines will start rolling out. Previous guidance was end of the year at best. If we get anything sooner than that, we are going to ratchet up.
CACs (Customer Acquisition Costs)
Since DTC is the new game in town, we are all going to want to understand exactly where marketing expenses were this quarter and, more importantly, where management thinks they are going. The magic words to listen for are "marketing efficiencies". Those words means the stock goes up. This is the next biggest line item on the P&L besides revenue and cost of goods sold.
New Product Categories
We heard the VP of Brand from Purple give us some touchy-feely vision of where the company is headed and that mattresses was just the revenue generating base to empower this. I'm hoping we hear more about this. This is what differentiated Amazon from Barnes and Noble: Amazon's vision was more than just books. Purple sees itself as more than just mattresses. Hopefully we get some announced action behind that vision. This multiplies the stock.
Cashless Exercise of PRPLW Warrants
I doubt this will be answered, even if the question is asked. I bet they wait until the 20 out of 30 days is up and they deliver notice. We could be pleasantly surprised. If management informs us that they will opt for cashless exercise of the warrants, this is anti-dilutive to EPS. It will reduce the number of outstanding shares and automatically cause an adjustment up in the stock price (remember kids, some people use math when investing). I'm hopeful, but not expecting it. The amount of the adjustment depends on the current price of the stock. Also, I fully expect PRPL management to use their cashless exercise option at the end of the 20 out of 30 days as they are already spitting cash.
I'm not just holding, I added.
PRPLW Warrants: 391,280
PRPL Call Debit Spreads: 17.5c/25c 8/21 x90, 20c/25c 8/21 x247
Also, I bought some CSPR 7.5p 8/21 x200 for fun because I think that sucker is going to get shamed back down to $6 after a real mattress company shows what it can do.
UPDATESI've made some updates to the model, and produced two different models:
From the recent S-3 filing for the May secondary, I pulled the following:
I diluted earnings by the above share count.
Model With Warrant Liability Going to Zero
Model With Warrant Liability Going to $47M
A few people called me out on my assumption, that I also said could be wrong. My favorite callout came from u/lawschoolbluesny who started all smug and condescending, and proceeded to tell me about June 31st, from which I couldn't stop laughing. Stay in law school bud a bit longer...
One other comment he made needs an answer because WHY we are accruing MATTERS a lot!
Now that we have established that coliseum still has not exercised the options as of july 7, and that purple needs to record as a liability the fair value of the options as of june 31, we now need to determine what that fair value is. You state that since you believe that there is no logical reason that coliseum won't redeem their warrants "there is no longer a warrant liability where the company may need to repurchase warrants back." While I'm not 100% certain your logic here, I can say for certain that whether or not a person will redeem their warrants does not dictate how prpl accounts for them.
The warrant liability accrual DOES NOT exist because the warrants simply exist. The accrual exists because the warrants give the warrant holder the right to force the company to buy back the warrants for cash in the event of a fundamental transaction for Black Scholes value ($18 at the end of June--June 31st that is...). And accruals are adjusted for the probability of a particular event happening, which I STILL argue is close to zero.
A fundamental transaction did occur. The Pearce brothers sold more than 10M shares of stock which is why the exercise price dropped to zero. (Note for DS_CPA1 on Stocktwits: there is some conflicting filings as to what the exercise price can drop to. The originally filed warrant draft says that the warrant exercise price cannot drop to zero, but asubsequently filed S-3, the exercise price is noted as being able to go to zero. I'm going with the S-3.)
Now, here is where it gets fun. We know from from the Schedule 13D filed with a July 1, 2020 event date from Coliseum that Coliseum DID NOT force the company to buy back the warrants in the fundamental transaction triggered by the Pearce Brothers (although they undoubtably accepted the $0 exercise price). THIS fundamental transaction was KNOWN to PRPL at the end Q4 and Q1 as secondary filings were made the day after earnings both times. This drastically increased the probability of an event happening.
Where is the next fundamental transaction that could cause the redemption for cash? It isn't there. What does exist is a callback option if the stock trades above $24 for 20 out of 30 days, which we are already 8 out of 10 days into.
Based upon the low probability of a fundamental transaction triggering a redemption, the accrual will stay very low. Even the CFO disagrees with me and we get a full-blown accrual, I expect a full reversal of the accrual next quarter if the 20 out of 30 day call back is exercised by the company.
I still don't understand why Coliseum would not have exercised these.
Regardless, the Warrant Liability Accrual is very fake and will go away eventually.
ONE MORE THING...Seriously, stop PMing me with stupid, simple questions like "What are your thoughts on earnings?", "What are your thoughts on holding through earnings?", and "What are your thoughts on PRPL?".
It's here. Above. Read it. I'm not typing it again in PM. I've gotten no less than 30 of these. If you're too lazy to read, I'm too lazy to respond to you individually.
Richard Dobatse, a Navy medic in San Diego, dabbled infrequently in stock trading. But his behavior changed in 2017 when he signed up for Robinhood, a trading app that made buying and selling stocks simple and seemingly free.
Mr. Dobatse, now 32, said he had been charmed by Robinhood’s one-click trading, easy access to complex investment products, and features like falling confetti and emoji-filled phone notifications that made it feel like a game. After funding his account with $15,000 in credit card advances, he began spending more time on the app.
As he repeatedly lost money, Mr. Dobatse took out two $30,000 home equity loans so he could buy and sell more speculative stocks and options, hoping to pay off his debts. His account value shot above $1 million this year — but almost all of that recently disappeared. This week, his balance was $6,956.
“When he is doing his trading, he won’t want to eat,” said his wife, Tashika Dobatse, with whom he has three children. “He would have nightmares.”
Millions of young Americans have begun investing in recent years through Robinhood, which was founded in 2013 with a sales pitch of no trading fees or account minimums. The ease of trading has turned it into a cultural phenomenon and a Silicon Valley darling, with the start-up climbing to an $8.3 billion valuation. It has been one of the tech industry’s biggest growth stories in the recent market turmoil.
But at least part of Robinhood’s success appears to have been built on a Silicon Valley playbook of behavioral nudges and push notifications, which has drawn inexperienced investors into the riskiest trading, according to an analysis of industry data and legal filings, as well as interviews with nine current and former Robinhood employees and more than a dozen customers. And the more that customers engaged in such behavior, the better it was for the company, the data shows.
Thanks for reading The Times. Subscribe to The Times More than at any other retail brokerage firm, Robinhood’s users trade the riskiest products and at the fastest pace, according to an analysis of new filings from nine brokerage firms by the research firm Alphacution for The New York Times.
In the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers, per dollar in the average customer account in the most recent quarter. They also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size, according to the analysis.
The more often small investors trade stocks, the worse their returns are likely to be, studies have shown. The returns are even worse when they get involved with options, research has found.
This kind of trading, where a few minutes can mean the difference between winning and losing, was particularly hazardous on Robinhood because the firm has experienced an unusual number of technology issues, public records show. Some Robinhood employees, who declined to be identified for fear of retaliation, said the company failed to provide adequate guardrails and technology to support its customers.
Those dangers came into focus last month when Alex Kearns, 20, a college student in Nebraska, killed himself after he logged into the app and saw that his balance had dropped to negative $730,000. The figure was high partly because of some incomplete trades.
“There was no intention to be assigned this much and take this much risk,” Mr. Kearns wrote in his suicide note, which a family member posted on Twitter.
Like Mr. Kearns, Robinhood’s average customer is young and lacks investing know-how. The average age is 31, the company said, and half of its customers had never invested before.
Some have visited Robinhood’s headquarters in Menlo Park, Calif., in recent years to confront the staff about their losses, said four employees who witnessed the incidents. This year, they said, the start-up installed bulletproof glass at the front entrance.
“They encourage people to go from training wheels to driving motorcycles,” Scott Smith, who tracks brokerage firms at the financial consulting firm Cerulli, said of Robinhood. “Over the long term, it’s like trying to beat the casino.”
At the core of Robinhood’s business is an incentive to encourage more trading. It does not charge fees for trading, but it is still paid more if its customers trade more.
That’s because it makes money through a complex practice known as “payment for order flow.” Each time a Robinhood customer trades, Wall Street firms actually buy or sell the shares and determine what price the customer gets. These firms pay Robinhood for the right to do this, because they then engage in a form of arbitrage by trying to buy or sell the stock for a profit over what they give the Robinhood customer.
This practice is not new, and retail brokers such as E-Trade and Schwab also do it. But Robinhood makes significantly more than they do for each stock share and options contract sent to the professional trading firms, the filings show.
For each share of stock traded, Robinhood made four to 15 times more than Schwab in the most recent quarter, according to the filings. In total, Robinhood got $18,955 from the trading firms for every dollar in the average customer account, while Schwab made $195, the Alphacution analysis shows. Industry experts said this was most likely because the trading firms believed they could score the easiest profits from Robinhood customers.
Vlad Tenev, a founder and co-chief executive of Robinhood, said in an interview that even with some of its customers losing money, young Americans risked greater losses by not investing in stocks at all. Not participating in the markets “ultimately contributed to the sort of the massive inequalities that we’re seeing in society,” he said.
Mr. Tenev said only 12 percent of the traders active on Robinhood each month used options, which allow people to bet on where the price of a specific stock will be on a specific day and multiply that by 100. He said the company had added educational content on how to invest safely.
He declined to comment on why Robinhood makes more than its competitors from the Wall Street firms. The company also declined to comment on Mr. Dobatse or provide data on its customers’ performance.
Robinhood does not force people to trade, of course. But its success at getting them do so has been highlighted internally. In June, the actor Ashton Kutcher, who has invested in Robinhood, attended one of the company’s weekly staff meetings on Zoom and celebrated its success by comparing it to gambling websites, said three people who were on the call.
Mr. Kutcher said in a statement that his comment “was not intended to be a comparison of business models nor the experience Robinhood provides its customers” and that it referred “to the current growth metrics.” He added that he was “absolutely not insinuating that Robinhood was a gambling platform.”
ImageRobinhood’s co-founders and co-chief executives, Baiju Bhatt, left, and Vlad Tenev, created the company to make investing accessible to everyone. Robinhood’s co-founders and co-chief executives, Baiju Bhatt, left, and Vlad Tenev, created the company to make investing accessible to everyone.Credit...via Reuters Robinhood was founded by Mr. Tenev and Baiju Bhatt, two children of immigrants who met at Stanford University in 2005. After teaming up on several ventures, including a high-speed trading firm, they were inspired by the Occupy Wall Street movement to create a company that would make finance more accessible, they said. They named the start-up Robinhood after the English outlaw who stole from the rich and gave to the poor.
Robinhood eliminated trading fees while most brokerage firms charged $10 or more for a trade. It also added features to make investing more like a game. New members were given a free share of stock, but only after they scratched off images that looked like a lottery ticket.
The app is simple to use. The home screen has a list of trendy stocks. If a customer touches one of them, a green button pops up with the word “trade,” skipping many of the steps that other firms require.
Robinhood initially offered only stock trading. Over time, it added options trading and margin loans, which make it possible to turbocharge investment gains — and to supersize losses.
The app advertises options with the tagline “quick, straightforward & free.” Customers who want to trade options answer just a few multiple-choice questions. Beginners are legally barred from trading options, but those who click that they have no investing experience are coached by the app on how to change the answer to “not much” experience. Then people can immediately begin trading.
Before Robinhood added options trading in 2017, Mr. Bhatt scoffed at the idea that the company was letting investors take uninformed risks.
“The best thing we can say to those people is ‘Just do it,’” he told Business Insider at the time.
In May, Robinhood said it had 13 million accounts, up from 10 million at the end of 2019. Schwab said it had 12.7 million brokerage accounts in its latest filings; E-Trade reported 5.5 million.
That growth has kept the money flowing in from venture capitalists. Sequoia Capital and New Enterprise Associates are among those that have poured $1.3 billion into Robinhood. In May, the company received a fresh $280 million.
“Robinhood has made the financial markets accessible to the masses and, in turn, revolutionized the decades-old brokerage industry,” Andrew Reed, a partner at Sequoia, said after last month’s fund-raising.
Image Robinhood shows users that its options trading is free of commissions. Robinhood shows users that its options trading is free of commissions. Mr. Tenev has said Robinhood has invested in the best technology in the industry. But the risks of trading through the app have been compounded by its tech glitches.
In 2018, Robinhood released software that accidentally reversed the direction of options trades, giving customers the opposite outcome from what they expected. Last year, it mistakenly allowed people to borrow infinite money to multiply their bets, leading to some enormous gains and losses.
Robinhood’s website has also gone down more often than those of its rivals — 47 times since March for Robinhood and 10 times for Schwab — according to a Times analysis of data from Downdetector.com, which tracks website reliability. In March, the site was down for almost two days, just as stock prices were gyrating because of the coronavirus pandemic. Robinhood’s customers were unable to make trades to blunt the damage to their accounts.
Four Robinhood employees, who declined to be identified, said the outage was rooted in issues with the company’s phone app and servers. They said the start-up had underinvested in technology and moved too quickly rather than carefully.
Mr. Tenev said he could not talk about the outage beyond a company blog post that said it was “not acceptable.” Robinhood had recently made new technology investments, he said.
Plaintiffs who have sued over the outage said Robinhood had done little to respond to their losses. Unlike other brokers, the company has no phone number for customers to call.
Mr. Dobatse suffered his biggest losses in the March outage — $860,000, his records show. Robinhood did not respond to his emails, he said, adding that he planned to take his case to financial regulators for arbitration.
“They make it so easy for people that don’t know anything about stocks,” he said. “Then you go there and you start to lose money.”
For this week's edition of DDDD (Data-Driven DD), we're going to look in-depth at some of the interesting things that have been doing on in the market over the past few weeks; I've had a lot more free time this week to write something new up, so you'll want to sit down and grab a cup of coffee for this because it will be a long one. We'll be looking into bankruptcies, how they work, and what some companies currently going through bankruptcies are doing. We'll also be looking at some data on retail and institutional investors, and take a closer look at how retail investors in particular are affecting the markets. Finally, we'll look at some data and magic markers to figure out what the market sentiment, the thing that's currently driving the market, looks like to help figure out if you should be buying calls or puts, as well as my personal strategy.submitted by ASoftEngStudent to wallstreetbets [link] [comments]
Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance.
How Bankruptcies WorkFirst, what is a bankruptcy? In a broad sense, a bankruptcy is a legal process an individual or corporation (debtor) who owes money to some other entity (creditor) can use to seek relief from the debt owed to their creditors if they’re unable to pay back this debt. In the United States, they are defined by Title 11 of the United States Code, with 9 different Chapters that govern different processes of bankruptcies depending on the circumstances, and the entity declaring bankruptcy.
For most publicly traded companies, they have two options - Chapter 11 (Reorganization), and Chapter 7 (Liquidation). Let’s start with Chapter 11 since it’s the most common form of bankruptcy for them.
A Chapter 11 case begins with a petition to the local Bankruptcy court, usually voluntarily by the debtor, although sometimes it can also be initiated by the creditors involuntarily. Once the process has been initiated, the corporation may continue their regular operations, overseen by a trustee, but with certain restrictions on what can be done with their assets during the process without court approval. Once a company has declared bankruptcy, an automatic stay is invoked to all creditors to stop any attempts for them to collect on their debt.
The trustee would then appoint a Creditor’s Committee, consisting of the largest unsecured creditors to the company, which would represent the interests creditors in the bankruptcy case. The debtor will then have a 120 day exclusive right after the petition date to file a Plan of Reorganization, which details how the corporation’s assets will be reorganized after the bankruptcy which they think the creditors may agree to; this is usually some sort of restructuring of the capital structure such that the creditors will forgive the corporation’s debt in exchange for some or all of the re-organized entity’s equity, wiping out the existing stockholders. In general, there’s a capital structure pecking order on who gets first dibs on a company’s assets - secured creditors, unsecured senior bond holders, unsecured general bond holders, priority / preferred equity holders, and then finally common equity holders - these are the classes of claims on the company’s assets. After the exclusive period expires, the Creditor’s Committee or an individual creditor can themselves propose their own, possibly competing, Restructuring Plan, to the court.
A Restructuring Plan will also be accompanied by a Disclosure Statement, which will contain all the financial information about the bankrupt company’s state of affairs needed for creditors and equity holders to make an informed decision about how to proceed. The court will then hold a hearing to approve the Restructuring Plan and Disclosure Statement before the plan can be voted on by creditors and equity holders. In some cases, these are prepared and negotiated with creditors before bankruptcy is even declared to speed things up and have more favorable terms - a prepackaged bankruptcy.
Once the Restructuring Plan and Disclosure Statement receives court approval, the plan is voted on by the classes of impaired (i.e. debt will not be paid back) creditors to be confirmed. The legal requirement for a bankruptcy court to confirm a Restructuring Plan is to have at least one entire class of impaired creditors vote to accept the plan. A class of creditors is deemed to have accepted a Restructuring Plan when creditors that hold at least 2/3 of the dollar amount and at least half of the number of creditors vote to accept the plan. After another hearing, and listening to any potential objections to the proposed Restructuring Plan, such as other impaired classes that don't like the plan, the court may then confirm the plan, putting it to effect.
This is one potential ending to a Chapter 11 case. A case can also end with a conversion to a Chapter 7 (Liquidation) case, if one of the parties involved file a motion to do so for a cause that is deemed by the courts to be in the best interest of the creditors. In Chapter 7, the company ceases operating and a trustee is appointed to begin liquidating (i.e. selling) the company’s assets. The proceeds from the liquidation process are then paid out to creditors, with the most senior levels of the capital structure being paid out first, and the equity holders are usually left with nothing. Finally, a party can file a motion to dismiss the case for some cause deemed to be in the best interest of the creditors.
The Tale of Two Bankruptcies - WLL and HTZHertz (HTZ) has come into news recently, with the stock surging up to $6, or 1500% off its lows, for no apparent fundamental reason, despite the fact that they’re currently in bankruptcy and their stock is likely worthless. We’ll get around to what might have caused this later, for now, we’ll go over what’s going on with Hertz in its bankruptcy proceedings. To get a clearer picture, let’s start with a stock that I’ve been following since April - Whiting Petroleum (WLL).
WLL is a stock I’ve covered pretty extensively, especially with it’s complete price dislocation between the implied value of the restructured company by their old, currently trading, stock being over 10x the implied value of the bonds, which are entitled to 97% of the new equity. Usually, capital structure arbitrage, a strategy to profit off this spread by going long on bonds and shorting the equity, prevents this, but retail investors have started pumping the stock a few days after WLL’s bankruptcy to “buy the dip” and make a quick buck. Institutions, seeing this irrational behavior, are probably avoiding touching at risk of being blown out by some unpredictable and irrational retail investor pump for no apparent reason. We’re now seeing this exact thing play out a few months later, but at a much larger scale with Hertz.
So, how is WLL's bankruptcy process going? For anyone curious, you can follow the court case in Stretto. Luckily for Whiting, they’ve entered into a prepackaged bankruptcy process and filed their case with a Restructuring Plan already in mind to be able to have existing equity holders receive a mere 3% of new equity to be distributed among them, with creditors receiving 97% of new equity. For the past few months, they’ve quickly gone through all the hearings and motions and now have a hearing to receive approval of the Disclosure Statement scheduled for June 22nd. This hearing has been pushed back a few times, so this may not be the actual date. Another pretty significant document was just filed by the Committee of Creditors on Friday - an objection to the Disclosure Statement’s approval. Among other arguments about omissions and errors the creditor’s found in the Disclosure Statement, the most significant thing here is that Litigation and Rejection Damage claims holders were treated in the same class as a bond holders, and hence would be receiving part of their class’ share of the 97% of new equity. The creditors claim that this was misleading as the Restructuring Plan originally led them to believe that the 97% would be distributed exclusively to bond holders, and the claims for Litigation and Rejection Damage would be paid in full and hence be unimpaired. This objection argues that the debtors did this gerrymandering to prevent the Litigation and Rejection Damage claims be represented as their own class and able to reject the Restructuring Plan, requiring either payment in full of the claims or existing equity holders not receiving 3% of new equity, and be completely wiped out to respect the capital structure. I’d recommend people read this document if they have time because whoever wrote this sounds legitimately salty on behalf of the bond holders; here’s some interesting excerpts:
Moreover, despite the holders of Litigation and Rejection Damage Claims being impaired, existing equity holders will still receive 3% of the reorganized company’s new equity, without having to contribute any new value. The only way for the Debtors to achieve this remarkable outcome was to engage in blatant classification gerrymandering. If the Debtors had classified the Litigation and Rejection Damage Claims separately from the Noteholder claims and the go-forward Trade Claims – as they should have – then presumably that class would reject a plan that provides Litigation and Rejection Damage Claims with a pro rata share of minority equity.
The Debtors have placed the Rejection Damage and Litigation Claims in the same class as Noteholder Claims to achieve a particular result, namely the disenfranchisement of the Rejection Damage and Litigation Claimants who, if separately classified, may likely vote to reject the Plan. In that event, the Debtor would be required to comply with the cramdown requirements, including compliance with the absolute priority rule, which in turn would require payment of those claims in full, or else old equity would not be entitled to receive 3% of the new equity. Without their inclusion in a consenting impaired class, the Debtors cannot give 3% of the reorganized equity to existing equity holders without such holders having to contribute any new value or without paying the holders of Litigation and Rejection Damage Claims in full.
The Committee submits that the Plan was not proposed in good faith. As discussed herein, the Debtors have proposed an unconfirmable Plan – flawed in various important respects. Under the circumstances discussed above, in the Committee’s view, the Debtors will not be able to demonstrate that they acted with “honesty and good intentions” and that the Plan’s results will not be consistent with the Bankruptcy Code’s goal of ratable distribution to creditors.
They’re even trying to have the court stop the debtor from paying the lawyers who wrote the restructuring agreement.
However, as discussed herein, the value and benefit of the Consenting Creditors’ agreements with the Debtors –set forth in the RSA– to the Estates is illusory, and authorizing the payment of the Consenting Creditor Professionals would be tantamount to approving the RSA, something this Court has stated that it refuses to do.20 The RSA -- which has not been approved by the Court, and indeed no such approval has been sought -- is the predicate for a defective Plan that was not proposed in good faith, and that gives existing equity holders an equity stake in the reorganized enterprise even though Litigation and Rejection Damage Creditors will (presumably) not be made whole under the Plan and the existing interest holders will not be contributing requisite new value.
As a disclaimer, I have absolutely zero knowledge nor experience in law, let alone bankruptcy law. However, from reading this document, if what the objection indicates to be true, could mean that we end up having the court force the Restructuring agreement to completely wipe out the current equity holders. Even worse, entering a prepackaged bankruptcy in bad faith, which the objection argues, might be grounds to convert the bankruptcy to Chapter 7; again, I’m no lawyer so I’m not sure if this is true, but this is my best understanding from my research.
So what’s going on with Hertz? Most analysts expect that based on Hertz’s current balance sheet, existing equity holders will most likely be completely wiped out in the restructuring. You can keep track of Hertz’s bankruptcy process here, but it looks like this is going to take a few months, with the first meeting of creditors scheduled for July 1. An interesting 8-K got filed today for HTZ, and it looks like they’re trying to throw a hail Mary for their case by taking advantage of dumb retail investors pumping up their stock. They’ve just been approved by the bankruptcy court to issue and sell up to $1B (double their current market cap) of new shares in the stock market. If they somehow pull this off, they might have enough money raised to dismiss the bankruptcy case and remain in business, or at very least pay off their creditors even more at the expense of Robinhood users.
The Rise of Retail Investors - An UpdateA few weeks ago, I talked about data that suggested a sudden surge in retail investor money flooding the market, based on Google Trends and broker data. Although this wasn’t a big topic back when I wrote about it, it’s now one of the most popular topics in mainstream finance news, like CNBC, since it’s now the only rational explanation for the stock market to have pumped this far, and for bankrupt stocks like HTZ and WLL to have surges far above their pre-bankruptcy prices. Let’s look at some interesting Google Trends that I found that illustrates what retail investors are doing.
Google Trends - Margin Calls
Google Trends - Robinhood
Google Trends - What stock should I buy
Google Trends - How to day trade
Google Trends - Pattern Day Trader
Google Trends - Penny Stock
The conclusion that can be drawn from this data is that in the past two weeks, we are seeing a second wave of new retail investor interest, similar to the first influx we saw in March. In particular, these new retail investors seem to be particularly interested in day trading penny stocks, including bankrupt stocks. In fact, data from Citadel shows that penny stocks have surged on average 80% in the previous week.
Why Retail Investors Matter
A common question that’s usually brought up when retail investors are brought up is how much they really matter. The portfolio size of retail investors are extremely small compared to institutional investors. Anecdotally and historically, retail investors don’t move the market, outside of some select stocks like TSLA and cannabis stocks in the past few years. However when they do, shit gets crazy; the last time retail investors drove the stock market was in the dot com bubble. There’s a few papers that look into this with similar conclusions, I’ll go briefly into this one, which looks at almost 20 years of data to look for correlations between retail investor behavior and stock market movements. The conclusion was that behaviors of individual retail investors tend to be correlated and are not random and independent of each other. The aggregate effect of retail investors can then drive prices of equities far away from fundamentals (bubbles), which risk-averse smart money will then stay away from rather than try taking advantage of the mispricing (i.e. never short a bubble). The movement in the prices are typically short-term, and usually see some sort of reversal back to fundamentals in the long-term, for small (i.e. < $5000) trades. Apparently, the opposite is true for large trades; here’s an excerpt from the paper to explain.
Stocks recently sold by small traders perform poorly (−64 bps per month, t = −5.16), while stocks recently bought by small traders perform well (73 bps per month, t = 5.22). Note this return predictability represents a short-run continuation rather than reversal of returns; stocks with a high weekly proportion of buys perform well both in the week of strong buying and the subsequent week. This runs counter to the well-documented presence of short-term reversals in weekly returns.14,15 Portfolios based on the proportion of buys using large trades yield precisely the opposite result. Stocks bought by large traders perform poorly in the subsequent week (−36 bps per month, t = −3.96), while those sold perform well (42 bps per month, t = 3.57). We find a positive relationship between the weekly proportion of buyers initiated small trades in a stock and contemporaneous returns. Kaniel, Saar, and Titman (forthcoming) find retail investors to be contrarians over one-week horizons, tending to sell more than buy stocks with strong performance. Like us, they find that stocks bought by individual investors one week outperform the subsequent week. They suggest that individual investors profit in the short run by supplying liquidity to institutional investors whose aggressive trades drive prices away from fundamental value and benefiting when prices bounce back. Barber et al. (2005) document that individual investors can earn short term profits by supplying liquidity. This story is consistent with the one-week reversals we see in stocks bought and sold with large trades. Aggressive large purchases may drive prices temporarily too high while aggressive large sells drive them too low both leading to reversals the subsequent week.
Thus, using a one-week time horizon, following the trend can make you tendies for a few days, as long as you don’t play the game for too long, and end up being the bag holder when the music stops.
The Keynesian Beauty ContestThe economic basis for what’s going on in the stock market recently - retail investors driving up stocks, especially bankrupt stocks, past fundamental levels can be explained by the Keynesian Beauty Contest, a concept developed by Keynes himself to help rationalize price movements in the stock market, especially during the 1920s stock market bubble. A quote by him on the topic of this concept, that “the market can remain irrational longer than you can remain solvent”, is possibly the most famous finance quote of all time.
The idea is to imagine a fictional newspaper beauty contest that asks the reader to pick the six most attractive faces of 100 photos, and you win if you pick the most popular face. The naive strategy would be to pick the faces that you think are the most attractive. A smarter strategy is to figure out what the most common public perception of attractiveness would be, and to select based on that. Or better yet, figure out what most people believe is the most common public perception of what’s attractive. You end up having the winners not actually be the faces people think are the prettiest, but the average opinion of what people think the average opinion would be on the prettiest faces. Now, replace pretty faces with fundamental values, and you have the stock market.
What we have today is the extreme of this. We’re seeing a sudden influx of dumb retail money into the market, who don’t know or care about fundamentals, like trading penny stocks, and are buying beaten down stocks (i.e. “buy the dip”). The stocks that best fit all three of these are in fact companies that have just gone bankrupt, like HTZ and WLL. This slowly becomes a self-fulfilling prophecy, as people start seeing bankrupt stocks go up 100% in one day, they stop caring about what stocks have the best fundamentals and instead buy the stocks that people think will shoot up, which are apparently bankrupt stocks. Now, it gets to the point where even if a trader knows a stock is bankrupt, and understands what bankruptcy means, they’ll buy the stock regardless expecting it to skyrocket and hope that they’ll be able to sell the stock at a 100% profit in a few days to an even greater fool. The phenomenon is well known in finance, and it even has a name - The Greater Fool Theory. I wouldn’t be surprised if the next stock to go bankrupt now has their stock price go up 100% the next day because of this.
What is the smart money doing - DIX & GEXAlright that’s enough talk about dumb money. What’s all the smart money (institutions) been doing all this time? For that, you’ll want to look at what’s been going on with dark pools. These are private exchanges for institutions to make trades. Why? Because if you’re about to buy a $1B block of SPY, you’re going to cause a sudden spike in prices on a normal, public exchange, and probably end up paying a much higher cost basis because of it. These off-exchange trades account for about one third of all stock volume. You can then use data of market maker activity in these dark pools to figure out what institutions have been doing, the most notable indicators being DIX by SqueezeMetrics.
Another metric they offer is GEX, or gamma exposure. The idea behind this is that market markets who sell option contracts, typically don’t want to (or can’t legally) take an actual position in the market; they can only provide liquidity. Hence, they have to hedge their exposure from the contracts they wrote by going long or short on the stocks they wrote contracts to. This is called delta-hedging, with delta representing exposure to the movement of a stock. With options, there’s gamma, which represents the change in delta as the stock price moves. So as stock prices move, the market maker needs to re-hedge their positions by buying or selling more shares to remain delta-neutral. GEX is a way to show the total exposure these market makers have to gamma from contracts to predict stock price movements based on what market makers must do to re-hedge their positions.
Now, let’s look at what these indicators have been doing the past week or so.
DIX & GEX
In the graph above, an increasing DIX means that institutions are buying stocks in the S&P500, and an increasing GEX means that market makers have increasing gamma exposure. The DIX whitepaper, it has shown that a high DIX is often correlated with increased near-term returns, and in the GEX whitepaper, it shows that a decreased GEX is correlated with increased volatility due to re-hedging. It looks like from last week’s crash, we had institutions buy the dip and add to their current positions. There was also a sudden drop in GEX, but it looks like it’s quickly recovered, and we’ll see volatility decreased next week. Overall, we’re getting bullish signals from institutional activity.
Bubbles and Market SentimentI’ve long held that the stock market and the economy has been in a decade-long bubble caused by liquidity pumping from the Fed. Recently, the bubble has been accelerated and it’s becoming clearer to people that we are in a bubble. Nevertheless, you shouldn’t short the bubble, but play along with it until it bursts. Bubbles are driven by pure sentiment, and this can be a great contrarian indicator to what stage of the bubble we are in. You want to be a bear when the market is overly greedy and a bull when the market is overly bearish. One of the best tools to measure this is the equity put / call ratio.
Put / Call Ratio
The put/call ratio dropped below 0.4 last week, something that’s almost never happened and has almost always been immediately followed up by a correction - which it did this time as well. A low put / call ratio is usually indicative of an overly-greedy market, and a contrarian indicator that a drop is imminent. However, right after the crash, the put/call ratio absolutely skyrocketed, closing right above 0.71 on Friday, above the mean put / call ratio for the entire rally since March’s lows. In other words, a ton of money has just been poured into SPY puts expecting to profit off of a downtrend. In fact, it’s possible that the Wednesday correction itself has been exasperated by delta hedging from SPY put writers. However, this sudden spike above the mean for put/call ratio is a contrarian indicator that we will now see a continued rally.
TechnicalsMagic Markers on SPY, Daily
With Technical Indicators, there’s a few things to note
My Strategy for Next Week
While technicals are pretty bearish, retail and institutional activity and market sentiment is indicating that the market still continue to rally. My strategy for next week will depend on whether or not the market opens above or below 300. I’m currently mostly holding long volatility positions, that I’ve started existing on Friday.
The Bullish case
If 300 proves to be a strong support level, I’ll start entering bullish positions, following my previous strategy of going long on weak sectors such as airlines, cruises, retail, and financials, once they break above the 24% retracement and exit at the 50% retracement. This is because there’s very little price levels and resistance above 300, so any movements above this level will be very parabolic up to ATHs, as we saw in the beginning of 2020 and again the past two weeks. If SPY moves parabolic, the biggest winners will likely be the weakest stocks since they have the most room to go up, with most of the strongest stocks already near or above their ATHs. During this time, I’ll be rolling over half of my profits to VIX calls of various expiry dates as a hedge, and in anticipation of any sort of rug pull for when this bubble does eventually pop.
The Bearish case
For me to start taking bearish positions, I’ll need to see SPY open below 300, re-test 300 and fail to break above it, proving it to be a resistance level. If this happens, I’ll start entering short positions against SPY to play the price levels. There’s a lot of price levels between 300 and 274, and we’d likely see a lot of consolidation instead of a big crash in this region, similar to the way up through this area. Key levels will be 300, 293, 285, 278, and finally 274, which is the levels I’d be entering and exiting my short positions in.
I’ve also been playing with WLL for the past few months, but that has been a losing trade - I forgot that a market can remain irrational longer than I can remain solvent. I’ll probably keep a small position on WLL puts in anticipation of the court hearing for the disclosure statement, but I’ve sold most of my existing positions.
Live UpdatesAs always, I'll be posting live thoughts related to my personal strategy here for people asking.
6/15 2AM - /ES looking like SPY is going to gap down tomorrow. Unless there's some overnight pump, we'll probably see a trading range of 293-300.
6/15 10AM - Exited any remaining long positions I've had and entered short positions on SPY @ 299.50, stop loss at 301. Bearish case looking like it's going to play out
6/15 10:15AM - Stopped out of 50% of my short positions @ 301. Will stop out of the rest @ 302. Hoping this wasn't a stop loss raid. Also closed out more VIX longer-dated (Sept / Oct) calls.
6/15 Noon - No longer holding any short positions. Gap down today might be a fake out, and 300 is starting to look like solid support again, and 1H MACD is crossing over, with 15M remaining bullish. Starting to slowly add to long positions throughout the day, starting with CCL, since technicals look nice on it. Also profit-took most of my VIX calls that I bought two weeks ago
6/15 2:30PM - Bounced up pretty hard from the 300 support - bull case looks pretty good, especially if today's 1D candle completely engulphs the Friday candle. Also sold another half of my remaining long-dated VIX calls - still holding on to a substantial amount (~10% of portfolio). Will start looking to re-buy them when VIX falls back below 30. Going long on DAL as well
6/15 11:30PM - /ES looking good hovering right above 310 right now. Not many price levels above 300 so it's hard to predict trading ranges since there's no price levels and SPY will just go parabolic above this level. Massive gap between 313 and 317. If /ES is able to get above 313, which is where the momentum is going to right now, we might see a massive gap up and open at 317 again. If it opens below 313, we might see the stock price fade like last week.
6/15 Noon - SPY filled some of the gap, but then broke below 313. 15M MACD is now bearish. We might see gains from today slowly fade, but hard to predict this since we don't have strong price levels. Will buy more longs near EOD if this happens. Still believe we'll be overall bullish this week. GE is looking good.
6/16 2PM - Getting worried about 313 acting as a solid resistance; we'll either probably gap up past it to 317 tomorrow, or we might go all the way back down to 300. Considering taking profit for some of my calls right now, since you'll usually want to sell into resistance. I might alternatively buy some 0DTE SPY puts as a hedge against my long positions. Will decide by 3:30 depending on what momentum looks like
6/16 3PM - Got some 1DTE SPY puts as a hedge against my long positions. We're either headed to 317 tomorrow or go down as low as 300. Going to not take the risk because I'm unsure which one it'll be. Also profit-took 25% of my long positions. Definitely seeing the 313 + gains fade scenario I mentioned yesterday
6/17 1:30AM - /ES still flat struggling to break through 213. If we don't break through by tomorrow I might sell all my longs. Norwegian announced some bad news AH about cancelling Sept cruises. If we move below $18.20 I'll probably sell all my remaining positions; luckily I took profit on CCL today so if options do go to shit, it'll be a relatively small loss or even small gain.
6/17 9:45AM - SPY not being able to break through 313/314 (79% retracement) is scaring me. Sold all my longs, and now sitting on cash. Not confident enough that we're actually going back down to 300, but no longer confident enough on the bullish story if we can't break 313 to hold positions
6/17 1PM - Holding cash and long-term VIX calls now. Some interesting things I've noticed
6/17 3:50PM - SPY 15M MACD is now very bearish, and 1H is about to crossover. I'd give it a 50% chance we'll see it dump tomorrow, possibly towards 300 again. Entered into a very small position on NTM SPY puts, expiring Friday
6/18 10AM - 1H MACD is about to crossover. Unless we see a pump in the next hour or so, medium-term momentum will be bearish and we might see a dump later today or tomorrow.
6/18 12PM - Every MACD from 5M to 1D is now bearish, making me believe we'd even more likely see a drop today or tomorrow to 300. Bought short-dates June VIX calls. Stop loss for this and SPY puts @ 314 and 315
6/18 2PM - Something worth noting: opex is tomorrow and max pain is 310, which is the level we're gravitating towards right now. Also quad witching, so should expect some big market movements tomorrow as well. Might consider rolling my SPY puts forward 1 week since theoretically, this should cause us to gravitate towards 310 until 3PM on Friday.
6/18 3PM - Rolled my SPY puts forward 1W in case theory about max pain + quad witching end up having it's theoretical effect. Also GEX is really high coming towards options expiry tomorrow, meaning any significant price movements will be damped by MM hedging. Might not see significant price movements until quad witching hour tomorrow 3PM
6/18 10PM - DIX is very high right now, at 51%, which is very bullish. put/call ratio is still very low though. Very mixed signals. Will be holding positions until Monday or SPY 317 before reconsidering them.
6/18 2PM - No position changes. Coming into witching hour we're seeing increased volatility towards the downside. Looking good so far
What are you doing clicking this when you could be reading yet another TSLA post!?!submitted by lurkingsince2006 to wallstreetbets [link] [comments]
tl;dr - PRPL Warrants (PRPLW) were registered again by Purple Innovation to trade on Nasdaq, which should drive a liquidity boost to their value ahead of any pile in from Robinhood users that can now trade them. (EDIT: see my note at the end. As a few users have pointed out, I was wrong on the RH retards).
Also, I'm liking the 20c / 22.5c spreads for 8/21. Great risk/reward (as of Friday).
DD RecapWhen PRPL had closed at $13.67 in the previous trading session I called PRPL to $19+ by 8/12 (ER) on 5/25. Congrats to those who listened.
If you actually do DD, I'd recommend you read the above link, along with the follow up DDs done for this quarter:
New DDI'm going to chat about the following in this post:
Warrants on NASDAQPRPLW warrants were originally listed on Nasdaq when the SPAC combination was completed. Because there were less than 400 unique round lot holders, the warrants fell off of NASDAQ and onto OTC markets where they have sat for well over a year.
On Thursday 7/16, Purple refiled to have the warrants listed on NASDAQ. NASDAQ followed close behind with a filing that certified their approval of the relisting of PRPLW.
How is this good? This will allow Robinhood users to pile into the warrants as well (watch Robintrack to monitor for meme status). On another note, it makes these commission-less trades on most other brokers, and also allows these to become marginable securities for yours truly (which means I get to double down and buy a whole lot more PRPL plays on margin).
Regardless, there was a value drop when the de-listing occurred due to the liquidity drop. I would expect some liquidity premium to return on these when the listing goes active again.
Updates to Previous DDCutting the Low End Products
Purple sells every mattress they make and is only constrained in sales by their manufacturing capacity (Purple is the actual manufacturer of their product, unlike other mattress startups like Casper). Please read previous DD at the top if you want more details.
In order to maximize revenue on the same units of sale, Purple discontinued their low-end mattress. This week, they announced a $100 price increase on their mid-tier mattress as well as their most popular mattress.
This is a great sign of management increasing their unit economics yet again.
You may recall that we've been tracking job postings on the Purple job board as another measure of growth. The last time I posted on this, there were 56 job postings. As of Friday, THERE ARE 98 JOB POSTINGS! More importantly, they are now offering a $2,000 signing bonus for factory production workers. There's some pretty interesting other jobs on there as well.
While the media screams about unemployment, Purple is trying to fill the roster to the point where production jobs are being offered a relatively substantial bonus!
Future Vision of PRPL Shared by VP of BrandingOn 7/9, Burke Morley, VP of Brand and Executive Creative Director at Purple, did a podcast where he shares some of the internal vision they have at Purple. They do NOT consider themselves just a mattress company, but rather mattresses is just a way to generate cash to allow them to apply their comfort innovation across many categories.
Dismissing Purple as just a mattress company is like seeing Amazon as just a bookseller in 1998. Burke shares their vision where they want to bring their technology to every aspect of your life: your office, your car, the plane, etc. Based upon the popularity of Purple's standalone seat cushions recently, they clearly can adapt their product to each of these markets.
If you are a DD-type of investor, I highly recommend you listen to the whole podcast, which does come across as very right-brained, in order to understand where this company is going.
Given that they have generated over $70M in cash in just April and May alone, I'm assuming we are going to see some of that cash deployed in product development to tap into these new markets. Exciting few years ahead of Purple!
This is not investment advice and do your own research before making any investments.
I'm long PRPL via several hundred thousand warrants, 25c 8/17 and 20c/22.5c 8/17 spreads.
EDIT: Looks like Robinhood users are still SOL with warrants even though they are NASDAQ. Time to upgrade your broker. I still think we will see a liquidity premium for these coming off of OTC.
Within the last month, Wealthsimple has also opened an office in London. Katchen said a push into the European market is “possible” as its “ambitions are global,” but right now the Canadian and U.S. markets are “a lot to chew.” It is a far cry from the company’s early days: Katchen said he was “laughed out of the boardroom” for laying out a global vision for Wealthsimple at a time when they had just $1.9-million in funding and 20 users***.***“It’s a very personal mission of mine since I moved back from California, to inspire more Canadian companies to think big and to think internationally about the businesses that they’re building,” he said. (reference)On Wealthsimple's growth in the next 10-15 years:
Wealthsimple has more than $5 billion in assets under management and 175,000 customers in Canada, the U.S. and U.K. He sees that reaching $1 trillion 15 years. “We’re just getting started,” he said. “Our plans are to get to millions of clients in the next five years.” (reference)
The goal is to get Wealthsimple to the size and scale to go public, something that Katchen said he’s “obsessed with.” While admitting that an IPO was still a few years down the road, Katchen already has a target of $20 billion in assets under administration (AUA) as the tipping point (the company recently announced $4.3 billion in AUA as of Q1 2019) (reference)
Katchen has directly addressed the question of why he did not go the traditional VC route recently, saying: If you are a business that requires perhaps decades to achieve the vision you have, well, if you’re not going to be able to generate the kind of returns that venture needs is they will force you to sell yourself, they will force you to go public before you’re ready, or they will just forget about you because you’re going to be a write off. And so Katchen essentially flipped Wealthsimple to Power Financial. Power is well known as a conservative, patient, long-term investor. (https://opmwars.substack.com/p/the-wealthsimple-founders-before)My belief is there is a huge unrecognized potential in POW.TO's massive ownership stake in WS that will be realized maybe 5-10 years down the road. I didn't really dive into the financials of POW.TO in relation to WS's performance, because the earnings reports do no actually say much about WS. I'm aware of the main criticisms that POW.TO is a mature company and dividend stock that has been trading sideways for many years, and the fact that WS is currently not a profitable company. I am not a professional investor, and this is just my amateur research, so I certainly welcome any comments/criticism of this thesis that people on this subreddit might have! (Please be gentle on me!).
I. The Death of Modern Portfolio Theory, The Loss of Risk Parity, & The Liquidity Crunchsubmitted by Variation-Separate to wallstreetbets [link] [comments]
SPY 1 Y1 Day
Modern portfolio theory has been based on the foundational idea for the past 3 decades that both equities and bonds are inversely correlated. However, as some people have realized, both stocks and bonds are both increasing in value and decreasing in value at the same time. This approach to investing is used pretty much in everyone's 401K, target date retirement plans, or other forms of passive investing. If both bonds and equities are losing value, what will happen to firms implementing these strategies on a more generalized basis known as risk-parity? Firms such as Bridgewater, Bluecrest, and H2O assets have been blowing up. [2,3]
Liquidity has been drying up in the markets for the past two weeks. The liquidity crisis has been in the making since the 2008 financial crisis, after the passage of Dodd-Frank and Basel III. Regulations intended to regulate the financial industry have instead created the one of the largest backstops to Fed intervention as the Fed tried to pump liquidity into the market through repo operations. What is a repo?
A repo is a secured loan contract that is collateralized by a security. A repo transaction facilitates the sale and future repurchase of the security that serves as collateral between the two parties: (1) the borrower who owns a security and seeks cash and (2) the lender who receives the security as collateral when lending the cash. The cash borrower sells securities to the cash lender with the agreement to repurchase them at the maturity date. Over the course of the transaction, the cash borrower retains the ownership of the security. On the maturity date, the borrower returns the cash with interest to the lender and the collateral is returned from the lender to the borrower.Banks like Bank of New York Mellon and JP Morgan Chase act as a clearing bank to provide this liquidity to other lenders through a triparty agreement. In short, existing regulations make it unfavorable to take on additional repos due to capital reserve requirement ratios, creating a liquidity crunch.[7,8,9] What has the Fed done to address this in light of these facts?
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period.II. Signs of Exhaustion & The Upcoming Bounce is a Trap, We Have Far More to Go
A simple indicator to use is the relative strength index (RSI) that a lot of WSB is familiar with. RSI is not the be all and end all. There's tons of indicators that also are indicating we are at a very oversold point.
SPY 1 Y1 Day RSI
Given selling waves, there are areas of key support and resistance. For reference, I have not changed key lines since my original charts except for the colors. You can check in my previous posts. 247.94 has been critically an area that has been contested many times, as seen in the figure below. For those that bought calls during the witching day, RIP my fellow autists. The rejection of 247.94 and the continued selling below 233.86 signals to me more downside, albeit, it's getting exhausted. Thus, I expect the next area in which we start rallying is 213.
SPY 10 Day/30 min
Another contrarian indicator for buying calls is that notable people in finance have also closed their shorts. These include Jeffery Gundlach, Kevin Muir, and Raoul Pal.[11,12,13]
III. The Dollar, Gold, and Oil
As previously stated, cash is being hoarded by not only primary banks, but central banks around the world. This in turn has created a boom in the dollar's strength, despite limitless injections of cash (if you think 1 trillion of Repo is the ceiling, think again) by the Fed.
Despite being in a deflationary environment, the DXY has not achieved such levels since 2003. Given the dollar shortage around the world, it is not inconceivable that we reach levels of around 105-107. For disclosure, I have taken a long position in UUP. However, with all parabolic moves, they end in a large drop. To summarize, the Fed needs to take action on its own currency due to the havoc it's causing globally, and will need to crush the value of the dollar, which will likely coincide with the time that we near 180.
If we are indeed headed towards 180, then gold will keep selling off. WSB literally screams bloody guhhhhhh when gold sells off. However, gold has been having an amazing run and has broken out of its long term channel. In times of distress and with margin calls, heavy selling of equities selling off of gold in order to raise cash. As previously noted, in this deflationary environment, everything is selling off from stocks, to bonds, to gold.
/GC Futures Contracts 5 Y1 Wk
What about oil? Given the fall out of the risk parity structure, I'm no longer using TLT inflows/outflows as an indicator. I've realized that energy is the economy. Closely following commodities such as light crude which follow supply and demand more closely have provided a much better leading indicator as to what will happen in equities. Given that, oil will also most likely hit a relief rally. But ultimately, we have seen it reach as low $19/barrel during intraday trading.
/CL Futures Contracts 1 Y1 D
IV. The Next 5 Years
In short, the recovery from this deflationary environment will take years to recover from. The trend down will not be without large bumps. We cannot compare this on the scale of the 2008 financial crisis. This is on the order of 1929. Once we hit near 180, the Fed crushes the dollar, we are in a high likelihood of hitting increased inflation, or stagflation. At this point the Fed will be backed into a corner and forced to raise rates. My targets for gold are around 1250-1300. It may possibly go near to 1000. Oil could conceivably go as low as $15-17/barrel, so don't go all in on the recovery bounce. No matter what, the current rise in gold will be a trap. The continued selling in the S&P is a trap, will bounce, forming another trap, before continuing our painful downtrend.
I haven't even mentioned coronavirus and unemployment until now. I've stated previously we are on track to hit around at least 10,000 coronavirus cases by the end of this month. It's looking closer to now 20-30,000. Next month we are looking to at least 100,000 by the end of the April. We might hit 1,000,000 by May or June.
Comparison of the 2020 Decline to 1929
Chart courtesy of Moon_buzz
tl;dr We're going to have a major reflexive rally starting around 213, all the way back to at least to 250, and possibly 270. WSB is going to lose their minds holding their puts, and then load up on calls, declaring we've reached a bottom in the stock market. The next move will be put in place for the next leg down to 182, where certain actors will steal all your tendies on the way down. Also Monday might be another circuit breaker.
tl;dr of tl;dr Big bounce incoming. Bear trap starting 213. Then bull trap up around 250-270. We're going down to around 182.
tl;dr of tl;dr of tl;dr WSB will be screwed both left and right before they can say guh.
Hint: If you want to get a Bloomberg article for free, hit esc repeatedly before the popup appears. If it doesn't work, refresh the article, and keep hitting esc.
Remember, do not dance. We are on the cusp of a generational change. Use the money you earn to protect yourselves and others. Financial literacy and knowledge is the key to empowerment and self-change.
Some good DD posts:
u/scarvesandsuspenders - https://www.reddit.com/wallstreetbets/comments/fmzu51/incoming_bounce_vix_puts/
Update 1 3/22/2020 - Limit down 3 minutes of futures. Likely hit -7% circuit breaker on the cash open on Monday at 213 as stated previously.
Do not think we will hit the 2nd circuit breaker at 199.06. Thinking we bounce, not too much, but stabilize at least around 202.97.
Update 2 3/23/20 9:08 - Watching the vote before making any moves.
9:40 - sold 25% of my SPY puts and 50% of my VXX calls
9:45 - sold another 50% of SPY puts
9:50 - just holding 25% SPY puts now and waiting for the vote/other developments
11:50 - Selling all puts.
Starting my long position.
11:55 - Sold USO puts.
12:00 - Purchased VXX puts to vega hedge.
2:45 - Might sell calls EOD. Looks like a lot of positioning for another leg down before going back up.
It's pretty common to shake things out in order to make people to sell positions. Just FYI, I do intraday trading. If you can't, just wait for EOD for the next positioning.
3:05 - Seeing a massive short on gold. Large amounts of calls on treasuries. And extremely large positioning for more shorts on SPY/SPX.
Will flip into puts.
Lot of people keep DM'ing me. I'm only going to do this once.
That said, I'm going back into puts. Just goes to show how tricky the game is.
3:45 - As more shorts cover, going to sell the calls and then flip into puts around the last few min of close.
Hope you guys made some money on the cover and got some puts. I'll write a short update later explaining how they set up tomorrow, especially with the VIX dropping so much.
3/24/20 - So the rally begins. Unfortunately misread the options volume. The clearest signal was the VIX dropping the past few days even though we kept swinging lower, which suggested that large gap downs were mostly over and the rally is getting started.
Going to hold my puts since they are longer dated. Going to get a few short term calls to ride this wave.
10:20 - VIX still falling, possibility of a major short squeeze coming in if SPY breaks out over 238-239.
10:45 - Opened a small GLD short, late April expiration.
10:50 - Sold calls, just waiting, not sure if we break 238.
If we go above 240, going back into calls. See room going to 247 or 269. Otherwise, going to start adding to my puts.
11:10 - Averaging a little on my puts here. Again, difficult to time the entries. Do not recommend going all in at a single time. Still watching around 240 closely.
11:50 - Looks like it's closing. Still going to wait a little bit.
12:10 - Averaged down more puts. Have a little powder left, we'll see what happens for the rest of today and tomorrow.
2:40 - Closed positions, sitting on cash. Waiting to see what EOD holds. Really hard trading days.
3:00 - Last update. What I'm trying to do here posting some thoughts is for you guys to take a look at things and make some hypotheses before trading. Getting a lot of comments and replies complaining. If you're tailing, yes there is risk involved. I've mentioned sizing appropriately, and locking in profits. Those will help you get consistent gains.
Bounced off 10 year trendline at around 246, pretty close to 247. Unless we break through that the rally is over. Given that, could still see us going to 270.
3/25/20 - I wouldn't read too much into the early moves. Be careful of the shakeouts.
Still long. Price target, 269. When does the month end? Why is that important?
12:45 - out calls.
12:50 - adding a tranche of SPY puts. Adding GLD puts.
1:00 est - saving rest of my dry powder to average if we still continue to 270. Think we drop off a cliff after the end of the quarter.
Just a little humor... hedge funds and other market makers right now.
2:00pm - Keep an eye on TLT and VXX...
3:50pm - Retrace to the 10 yr trend line. Question is if we continue going down or bounce. So I'm going to explain again, haven't changed these lines. Check the charts from earlier.
3/26/20 - Another retest of the 10 yr trendline. If it can go over and hold, can see us moving higher.
9:30 - Probably going to buy calls close to the open. Not too sure, seems like another trap setting up. Might instead load up on more puts later today.
In terms of unemployment, was expecting close to double. Data doesn't seem to line up. That's why we're bouncing. California reported 1 million yesterday alone, and unemployment estimates were 1.6 million? Sure.
Waiting a little to see the price action first.
Treasuries increasing and oil going down?
9:47 - Added more to GLD puts.
10:11 - Adding more SPY puts and IWM puts.
10:21 - Adding more puts.
11:37 - Relax guys, this move has been expected. Take care of yourselves. Eat something, take a walk. Play some video games. Don't stare at a chart all day.
If you have some family or close friends, advise them not to buy into this rally. I've had my immediate family cash out or switch today into Treasury bonds/TIPS.
2:55pm - https://youtu.be/S74rvpc6W60?t=9
3:12pm - Hedge funds and their algos right now https://www.youtube.com/watch?v=ZF_nUm982vI
4:00pm - Don't doubt your vibe.
For those that keep asking about my vibe... yes, we could hit 270. I literally said we could hit 270 when we were at 218. There was a lot of doubt. Just sort by best and look at the comments. Can we go to 180 from 270? Yes. I mentioned that EOM is important.
Here's another prediction. VIX will hit ATH again.
2:55pm EST - For DM's chat is not working now. Will try to get back later tonight.
Stream today for those who missed it, 2:20-4:25 - https://www.twitch.tv/videos/576598992
Thanks again to WallStreetBooyah and all the others for making this possible.
9:10pm EST Twitter handles (updated) https://www.reddit.com/wallstreetbets/comments/fmhz1p/the_great_unwinding_why_wsb_will_keep_losing/floyrbf/?context=3, thanks blind_guy
Not an exhaustive list. Just to get started. Follow the people they follow.
Dark pool and gamma exposure - https://squeezemetrics.com/monitodix
Wyckoff - https://school.stockcharts.com/doku.php?id=market_analysis:the_wyckoff_method
Investopedia for a lot. Also links above in my post.
lol... love you guys. Please be super respectful on FinTwit. These guys are incredibly helpful and intelligent, and could easily just stop posting content.
submitted by Hi_Im_TwiX to VALORANT [link] [comments]
Valorant and the importance of crosshair placement.
Hey guys, I'm Twix, and I'm back with another informative post, this time concerning the aspect of crosshair placement. Through this post I will be discussing the importance of crosshair placement within the tac shooter genre, going over the most common mistakes I see people make in my experience as a coach, and offering structured routines to remedy the majority of these mistakes. If you haven't read through any of my posts before ( I wouldn't they're too long ) I am an FPS player which mainly played CS:GO competitively, with around 7k hours and multiple level 10 faceit accounts and LAN wins in the past 5 years, who transitioned towards the end of my CS:GO days into being an FPS coach, I mainly worked with people trying to gain a competitive edge in CS, but later moved to coaching Apex players, and following the closed beta release of Valorant, I have been coaching Valorant players for the past few months, with unanimously positive feedback. If you haven't read my first post which is a comprehensive general guide for players looking to improve in Valorant, I highly recommend you look at it here before continuing on to this post. In relation to other qualifications / achievements, I have hit top 30 as hitscan DPS in Overwatch, maintained top 500 ranking in Apex ( PC ) for a couple of seasons, and hold numerous 1% rankings on various Kovaak's FPS Aim Trainer maps. My main goal in creating these posts is to contribute to the Valorant community by sharing my knowledge gained over 10k collective hours of FPS experience ( mainly Tactical fps ) and hopefully help the people reading my posts improve and gain that competitive edge they need to progress into their desired ranking. For those of you interested in learning more about my coaching service, or looking for a community of Valorant players looking to improve, I will link my Discord server at the end of this post.
Why is crosshair placement important?
If I was asked about the importance of consistent crosshair placement in games such as PUBG, Apex, Overwatch, Fortnite, etc. I would probably answer by saying that while it's beneficial to maintain solid crosshair placement, it's by no means the most important aspect in relation to performing well in those games, in tactical shooters however, it's a whole different story. Tactical shooters are low TTK ( time to kill ) games, and for the most part, a single bullet to the head is enough to eliminate a player, this means that in contrast to AFPS games, or games like Overwatch or Apex, which have a much higher TTK, first shot accuracy is of extreme importance in Valorant, inevitably leading to the fact that crosshair placement is also extremely important. In a game with higher TTK, even if your first shot accuracy isn't perfect in an aim duel, you can win the fight if you land more shots on the opposing player over x amount of time that you trade with them, while in Valorant, whoever needs to make the least amount of adjustment to their crosshair when engaging in a 1v1 scenario wins the exchange. It doesn't matter if your raw aim is out of this world, even if you have the most precise flicks known to the FPS community, if your crosshair placement is sub-optimal, you will lose vs. someone with consistent crosshair placement, this is simply due to the fact that all they need to do, is click once your head moves into their crosshair, often without even needing to move their mouse. Crosshair placement may very well be the most important aspect in relation to gunplay and generally the mechanical aspect of tac shooters such as CS:GO or Valorant, as it's the deciding factor in the majority of aim duels.
A large amount of players tend to underestimate the importance of crosshair placement in Valorant, and especially the underlying complexity of maintaining consistency in that context. People think that all you need to do to maintain solid crosshair placement is aim high enough to hit headshots, meaning that the only factor that affects crosshair placement is vertical positioning, others still stick to making their main source of information on game improvement being players who make statements as un-informative and vague as "just click heads", my main goal is to break down and explain the multiple factors that go into proper crosshair placement. Lets start with the basics:
As mentioned above, one of the elements which ties into crosshair placement is vertical positioning. this is the set distance that you need to position your crosshair at in relation to the ground to be able to align your crosshair's horizontal axis with player model head-level. The good thing about vertical positioning, is that you can get accustomed to the head level that the player models have in Valorant quite rapidly, as the hitbox sizes in this game are identical, meaning you can always use the ground as a point of reference to determine where the enemy player's head would be.
In Valorant, the head level always remains a set distance from the ground
In order to train your general ability to place your crosshair at the correct height, try to make a habit out of constantly reminding yourself to place your crosshair at head level, regardless of where you are or what you're doing on the map. What I mean by this, is that even if there isn't any imminent threat of enemy players peeking you, try to keep constantly keep your crosshair at head level, the more time you spend doing this, the faster it will become a habit and become something you do subconsciously, without having to actively focus on the action. This habit allows you to build muscle-memory during otherwise useless down-time, another way to do this is to track your teammate's heads with your crosshair while rotating, leaving spawn etc.
While vertical positioning is something that people get used to relatively easily, I have come across a recurring issue among the VODs of people I coach, and that is that people generally struggle with adapting the vertical component of their crosshair's position to varying points of elevation. Here's an image to help you visualize a scenario where this could be an issue:
Peeking C Long, Positions marked: Cubby ( right ), Platform ( left ), back-site ( back )
In the image above I am peeking into C back-site from C long on the map 'Haven', I have highlighted three different positions / angles where an enemy could potentially peak from in an in-game reenactment of this scenario, Platform, Cubby, and back-site. What you'll notice is that these positions all have different points of elevation, meaning that while using the ground as reference will allow me to maintain my crosshair at head-level if someone peeks my position from ground level on C site, in order to clear cubby and platform, I would need to adjust my crosshair accordingly, using their lower levels as a reference for where the head-level position would be in those angles.
Unfortunately, if you are struggling with this due to the fact that you aren't familiar with the map layout yet, the only thing that will remedy your situation is more time spent playing the game, if however, your issue stems from a mechanical inability, meaning that your mouse control isn't good enough to allow you to make such adjustments comfortably, the routine provided later in the guide may help you get past that issue.
Just as with vertical positioning, horizontal positioning is pretty self-explanatory in terms of it's function. Knowing at what height to position your crosshair at in relation to the environment is far easier to do than knowing where to position it on a horizontal axis, the reasoning behind this is that with vertical placement you will always have the ground or lower level of the object the opponent is standing on as a point of reference which allows you to instantly know at what height head-level is. When focusing on the horizontal aspect of crosshair placement, there isn't a set point of reference at all times; Sometimes you need to hold wide angles, sometimes you need to move along with the object you're playing against, and sometimes you need to pre-aim to swing effectively, all this variability makes it much harder for a newer player to grasp crosshair placement and horizontal positioning is just as crucial as vertical positioning if not even more important.
A very common mistake which I see a lot of in the VODs I review as a coach, is newer players holding angles too tightly, meaning that they're playing in a position where they anticipate an enemy push and are waiting for the engagement, and their crosshair is a position where it's hugging the edge of the wall the enemy will peek from. Here is a visual representation of what I'm talking about:
Example of incorrect horizontal placement
In the image above, I'm holding an angle where if someone crosses moving parallel to the wall I'm looking at, I'll have under 50 ms to react, my crosshair is so close to the edge of the wall that I will need to click my LMB the milli-second I see the enemy. By holding this angle, chances are that by the time I click the enemy will have already crossed to the left of my crosshair resulting in a miss and most likely my death; It would take inhuman reaction times for anyone to hit a player while holding like this, especially if the enemy player is swinging. Instead, you should allow some distance from your crosshair to the edge of the angle you're holding, allowing yourself to spot the enemy's player model, and then time your click effectively. Here is a visual representation of correct crosshair placement while holding the same angle:
Example of correct horizontal placement
As you can see, in the image above I am allowing for some space between the wall and my crosshair, giving me a significantly longer time window to spot an enemy player and react. Holding an angle that's too "tight" would mean I need to make a larger adjustment to hit the enemy, and therefore I increase my margin of error due to vertical overshoot ( see below ). There are exceptions to the rule when it comes to the distance you need to hold at, if the angle you are holding only allows forward movement ( into your crosshair ) you can hold a narrow line of sight. If you are clearing an angle ( moving along it to check for enemies ) and you are the agressor, you can hold tight and move along with the wall / LOS to allow for a faster reaction if you spot an enemy during your movement. If you are the agressor and you want to swing into an angle that you believe / know an enemy is holding, it is sometimes optimal to pre-aim, meaning you position your crosshair in a way where without moving your mouse it will be aimed at the enemy's head once you swing out the angle.
The final common issue I would like to bring up which ties into both crosshair placement and horizontal click-timing, is something I call "vertical offset" or "vertical overshoot", this is a player's inability to move his crosshair horizontally while maintaining the same vertical placement. Vertical offset is a big issue when it comes to switching angles or flicking horizontally, I have seen many scenarios where a player is holding an angle properly with their crosshair at a pixel-perfect vertical position in relation to head level, only to make a 30 degree turn to check a different angle and end up shooting at an enemy's chest and losing the duel. Usually, the larger the movement, the more the player's crosshair deviates vertically. Here is a depiction of what vertical offset / overshooting looks like in-game:
Example of margin of error caused by vertical offset / overshooting
In the image above the green dot is where the crosshair should end up in an ideal scenario while flicking from it's current position to the target dummy, while the green lines represent a theoretical margin of error for overshooting. Fortunately for people that face this issue, I have come up with multiple Kovaak's maps and firing range excercises to help combat it and largely reduce your margin of error when moving your crosshair / flicking horizontally.
Settings: What sensitivity / crosshair should I use?
This part of the post discusses a topic which is highly subjective, both the sensitivity you use and the crosshair you use are something preference-based that you should decide upon on your own, the reason I'm adding this section into the post is for players which are newer to the tac-shooter genre; There are a few guidelines that will help them narrow down the settings that work the best for them.
First off, don't by any means copy your favorite pro's config, just because something works for a professional player that has probably spent well above 10,000 hours playing FPS games and decided upon their ideal sensitivity and crosshair within that massive period of time, doesn't mean that it's going to work for you, use whatever you're most comfortable with. Other than individual preference, and having gotten used to their sensitivity, the Pros you watch may be using gear which feels different at their sensitivity setting. A lighter mouse, faster mouse-pad, and faster feet can feel very different in terms of mouse movement, even if you're playing on the same sensitivity value on paper. In relation to grip-styles and what mice are ideal for each hand size, make sure to check out my first post in this sub before moving forward with this guide, as playing on hardware that caters to your individual preferences plays an important role in increasing your mechanical potential.
As I stated in the paragraph above, sensitivity is something quite subjective and while there's no general rule as to which single sens value is superior, Valorant and CS:GO professionals tend to stick to e-dpi or cm/360 much lower than professional players in other titles and FPS subgenres. Your e-dpi is your in-game sensitivity value multiplied by your mouse's DPI setting. The average e-dpi used by Valorant professionals is around 250 e-dpi, which would be a value of 0.625 in-game @ 400 DPI, or around 50 cm/360.
Pro player & Streamer sensitivity settings (e-dpi)
cm/360 is a universal format for sensitivity measurement, it's the amount of centimeters you need to move your mouse in order to perform a full rotation. This is the format adopted within aimer communities due to the simple fact that you asking someone "what sensitivity do you play on?" And them responding with "1.5 in CSGO" is pretty useless information as they could be playing at any DPI range, and you don't necessarily know what each CSGO sens corresponds to in relation to physical movement, or even movement in other games. "e-dpi" solves the issue of different DPI x Sens measurements within the same game, but the cm/360 format is easily transferable from title to title.
The reason professional players in the tac shooter genre use lower sens on average, is due to the fact that in contrast with other FPS games, tac shooters don't require larger or extended movements, instead they require you to hold or clear angles while maintaining stable crosshair placement, the least adjustments you need to make to your crosshair's position on your screen, the better your "aim" will be. The majority of players I have coached report that it has been significantly easier for them to maintain consistent crosshair placement at lower sensitivities. For newer players that still haven't found a "main" sensitivity that they feel comfortable on, I would recommend for them to stick to the range of 200-300 e-dpi, while for more experienced players coming from CS or other similar games, I would recommend a similar range with a higher cap, at 200-400 e-dpi ( very few professional players play above 300 e-dpi ).
This is something even more subjective and preference-based than sensitivity even, so what I will do in this section is simply post my own settings which I use for my in-game crosshair, and explain why I picked each value within the menu.
So, lets break my crosshair down setting by settings:
Crosshair Placement Improvement Routine:A large portion of improving your crosshair placement is based on simply playing the game more, crosshair placement is largely based on muscle memory, part of having good crosshair placement is simply based on having experience in-game allowing it to become a subconscious habit, and the rest is based on your ability to anticipate player model movement and learn to make horizontal movements without simultaneously your crosshair vertically. The routine I will provide is not only a great way to work on your crosshair placement, but also highly beneficial to the click-timing aspect of your aim, which is basically the only element of aiming required in Valorant, as good tracking is unecessary in such a low TTK game. If you are already training using a daily routine on Kovaak's ( as you should be ) you can just implement this into your daily scenarios.
( These are all maps which require you to make horizontal movements without overshooting vertically, thus good aim training for those struggling with crosshair placement, see my other posts for a larger variety of Kovaaks maps )
Link to my Discord server for further questions / coaching inquiries:
---------- https://discord.gg/6ZYVZ6xNew twitter : https://mobile.twitter.com/Twix_v2
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