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Courtesy of Nikola.
Investors must prepare for volatile week of stock trading by heavy-duty fuel cell truck pioneer Nikola.
Stock guarantees, issued in some of the transactions that eventually brought the company to the public markets, can now be exercised. Shares slumped on the news on Friday, but investors may have reacted too negatively.
Nikola’s shares (ticker: NKLA) fell 7% on Friday during normal trading hours, and lost another 14.5% in after-hours trading, once the company said guarantees could finally be exercised.
Warrants essentially create a large number of new Nikola shares that are likely to be sold to secure profits.
The warrants in question give the holder the right to buy a Nikola share for $ 11.50, a stock trade deal at almost $ 49 a share. Warrants, like stocks, are freely traded and closed at $ 24.62 on Friday.
The cost of a warrant and the $ 11.50 required to purchase a share total $ 36.12, leaving a profit of $ 12.72 if warrant users can download the new shares received at Friday’s closing price of $ 48.84. It is a quick and substantial gain for anyone who has recently purchased warrants.
But that is only part of the history of the court order. Close to 11.5 million Nikola shares have been loaned and sold short. Some of the short sales were likely made by warrant holders seeking profit. When collateral holders obtain shares, they will use them to replace the loaned shares.
About 24 million warrants are pending. That’s more than the number of short-sold shares, although it’s difficult to know precisely the number of short-sold shares since those data are updated only twice a month. And there are other ways to execute a similar blocking strategy, including through the use of put options.
The impact that the exercise of the order has on Nikola’s actions may not be as bad as feared. Still, stocks should still be volatile next week.
That is nothing new for Nikola shareholders. Since the beginning of March, when Vectoiq, a special-purpose acquisition vehicle, or SPAC, announced plans to merge with Nikola, shares have varied widely in price, from around $ 10 to more than $ 90. A SPAC is a company. called a blank check founded to make acquisitions.
Since the announcement of plans to buy Nikola, Vectoiq’s shares, which are now marketed as Nikola, have risen approximately 325%. The Dow Jones Industrial Average and S&P 500, by comparison, rose 3.3% and 7.1%, respectively, over the same span.
Write to Al Root at [email protected]
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