Description

Small fund or PA Trade 

This is a short and simple idea that is a derivative on a full write up by another member of VIC.  Please refer to Rhubarb's thesis on GRSV on June 2nd.  I will not rehash the thesis here, go read his write up.      

Gore Holdings V is merging with Ardagn Metal.  The common initially traded above $10 at a premium and there was a $600mm PIPE investment to back stop the deal to ensure the merger happens.  While the SPAC market was hot last year, it has cooled off significantly.  Witness the total collapse of the ATI Physical Therapy.  SPAC as an asset class has gone from bad to Toxic and won't touch with a ten foot pole territory. We've been investing in SPACs for 10 years now and had our share of mistakes.  But 1) I think the GRSV write up is particularly high quality on VIC.  2) The Gore group is a good sponsor.  3) I like packaging businesses as I own Berry Global 4) GRSV is better, more ESG friendly and growing 5) GRSV will likely be a $20 in 3 years 6) I am ready to buy more GRSV if it sells off 

Although I can not totally verify this, my understanding is that the PIPE guys can't sell their stock until there is a registration which takes some time.  So they initially did the PIPE because it is "kind of like free money" when GRSV traded above $10 and give them a "free look" at a NKLA or SPCE type scenario.  I suspect they did not know a lot about the business, unlike rhubarb, who wrote a great thesis.  Now they are panicking and looking to hedge their downside.      

The trade here is to write the August 20th $10 puts.  The premium is around $0.80-$1.00.  I wrote a bunch of $1.00 premium for the $10 put a few days ago.  So you are committing to buying GRSV post merger at a price of $9.00-$9.20.  If the stock trades above $10 and the put doesn't get exercised, you make 8-10% in 3 weeks.  Yay, that's an awesome IRR!  If it trades lowers, you buy the stock and hold it for 3 years and make 117% in 3 years.  That is the gist of the thesis. 

Sizing - Don't size this too big.  I would set aside the cash and be ready to buy the stock.  Who knows, maybe the stock goes to $7 or $8.  It would be back the truck up price for me at that point.  Remember, the sizing is not how much premium you receive, it is how much cash you have to post to buy the shares in case you get put the stock.   

Catalyst

Options expiration - You either get the premium or you buy the stock at $9.00 to $9.20.