Pershing Square Tontine Isn’t an All-In Investment Just Yet

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The words “you’ve got to be in it to win it” appear particularly relevant for many of today’s hot special purpose acquisition company (SPAC) stocks. But when it comes to Pershing Square Tontine Holdings (NYSE:PSTH), have investors gone too far in their enthusiasm? Let’s take a look at what’s happening off and on the price chart of PSTH stock, then offer a risk-adjusted determination aligned with those findings.

Source: Pasuwan/ShutterStock.com

Investing can be risky. But where there’s risk, there may be reward. And one area of the market that’s taken this dynamic to a whole new level this past year are SPACs. The process of reverse merging a listed shell holding stock with a private company as an alternative means to the initial public offering process has been a sensation on Wall Street.

Switchback Energy (NYSE:SBE). QuantumScape (NYSE:QS). Blink Charging (NASDAQ:BLNK). DraftKings (NASDAQ:DKNG). Those are but a handful of today’s heavily traded companies which have found massive favor with investors. And it’s not entirely without merit either. EV and online sports betting stocks like these have the potential for producing huge secular trends which may only be in the first couple of innings of play. And that could mean even bigger returns for investors in 2021 and beyond.

But what if the shell stock in question doesn’t even have a private company lined up yet to reverse merge with? Let’s also say it has an obligation to walk down the corporate aisle in the next 18 months or so? And suppose all the while shares are going up in a fairly carefree manner?

That’s today’s scenario in PSTH.

So What IS PSTH Stock?

So, who or what is Pershing Square Tontine? PSTH stock is the offspring of well-known activist hedge fund manager Bill Ackman. And outside of an ugly stretch from about 2015 – 2018 when he crusaded against Herbalife (NYSE:HLF) and saw a massive, long bet in Valeant Pharmaceuticals (now Bausch Health Companies (NYSE:BHC)) go belly up, his longer-term hedge fund performance, including record market-beating returns the past two years put him among the elite in the industry.

Today and buying into the PSTH story, investors are making a bet, as InvestorPlace’s David Moadel notes, “on the jockey, if not the horse.” Bottom line, PSTH is a shell or blank check company still in need of an investment to take public through the SPAC process.

The other twist? Bill Ackman’s intentions are to go after a “mature unicorn” when it finally heads to the altar with its bride. Unlike today’s hugely popular crop of electric vehicle or online betting SPACs, which by and large are still widely unproven businesses, PSTH has been in talks with companies valued in excess of $1 billion whose doors for business are already well-established.

Financial media giant Bloomberg. Fintech upstart Stripe. SpaceX. Chick-fil-A. You know who they are. And they’ve all been bandied about in recent weeks as companies of interest to PSTH.

Each bit of excitement has also been followed up with “we’re not interested” type responses from the potential target. So, what’s an investor to do? In Bill or PSTH stock we trust?

PSTH Stock Weekly Price Chart


Source: Charts by TradingView

Technically, the price chart of PSTH looks solid overall. After breaking out to all-time-highs in late November, a bit of successful backing-and-filling has resulted in an up channel forming. A bullish stochastics crossover in neutral territory is also supportive of the trend’s ability to continue rallying.

So, “you’ve got to be in it to win it?” And PSTH is a buy, right? It mostly appears that way. But despite respect for what Bill Ackman has accomplished for investors over the years, I’d recommend buying a PSTH stock collar. This defined and reduced risk strategy can be traded to the investor’s advantage during both leaner and potentially more bountiful days that lay ahead.

One collar which looks like a nice spot to begin this campaign of adjustments, stock accumulation, as well as laying off risk when there’s pigs ready for slaughter is the March $25/$40 combination.

On the date of publication, Chris Tyler holds, directly or indirectly, positions in DraftKings (DKNG) and its derivatives, but no other securities mentioned in this article.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100%  the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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