It’s almost here. No, I’m not hinting at the upcoming Christmas holiday. But a re-wrapped gift of sorts is about to make Landcadia Holdings II (NYSE:LCA) investors very jolly. Let’s see what’s happening off and on the price chart of LCA stock and why we’re bullish on shares, then offer a risk-adjusted determination aligned with those findings.
If you haven’t yet heard of it, you’re likely not alone. Even trader’s traders in 2020’s over-the-top glut of reverse mergers might be forgiven for not knowing LCA. We’re not talking Apple (NASDAQ:AAPL), Disney (NYSE:DIS) or some other blue-chip stock.
And 2021 isn’t likely to improve those chances either. But that doesn’t preclude fast, big-time gains worthy of making blue-chip investors jealous with envy.
Right now, the fact is special purpose acquisition companies or blank-check entities are responsible for bringing oodles of companies successfully into the red hot EV and online sports betting markets. It’s been the gift of fast and big-time payoffs. And it would be a big mistake to look the other way with LCA on deck.
DraftKings (NASDAQ:DKNG). Switchback Energy (NYSE:SBE). Blink Charging (NASDAQ:BLNK). DMY Technology Group (NASDAQ:DMYT). Workhorse Group (NASDAQ:WKHS). The list goes on of stocks that have been particularly nice to investors buying SPACS like LCA in front of their reverse mergers. We’re talking doubles and greater in a matter of days to maybe a few weeks once the newly merged company begins trading.
To be fair, more than a couple SPACs have hit speed bumps and some have even crashed hard. EV big-rig and pick-up truck play Nikola (NASDAQ:NKLA) is one high-profile example of the latter. But that’s also a company-specific situation with bad behavior driving the stock lower. So, without passing judgment and simply appreciating a spade as a spade and knowing spades have been consistently paying investors to play the game, the fix is almost in, both off and on the price chart.
LCA Stock Daily Price Chart
Source: Charts by TradingView
This Friday Landcadia will have a special meeting of its shareholders. Its sole purpose is a vote on the business combination with Golden Nugget Online Gaming which will result in the two companies trading under the ticker GNOG. If approved, which we can anticipate will happen, sometime soon we can expect the new entity to commence trading.
To be sure, long-term wedded bliss for GNOG might be a stretch, at least at today’s stretched market levels. Buying in is expensive based on more reasonable pricing assumptions and it will turn ugly. Someday. At the moment though, if an investor is OK with a calculated short-term trade that’s trending the color of money rather than some noble-minded ESG mission as a goal, LCA is shaping up as a buy on weakness for outsized, fast money profits.
Technically, weakness in LCA stock has already started. Shares have lost roughly 19% over the past week. But 30% is a common decline to watch for a stock of this caliber. What’s more, stochastics is still pointing lower in neutral territory with no signs of firming.
At a minimum, I’d watch for a deeper correction and ideally one that’s finding a more supportive stochastics setup before buying in. And if the time to wager more smartly reveals itself in the coming days, I’d bet on “the over” with a limited and reduced risk January $22.50/$30 bull call spread.
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.