The Four Microcap Stocks To Cause A Squeeze On Sabby - ALF, BCTX, GOED, GOVX

This past week we started talking about microcap squeeze plays. Wallstreetbets censors DD on these stocks so we are going to do write ups here instead. 

AMC apes are fighting against the scummy moves of hedge fund shorters, attempting to create a major squeeze. While that can happen and is well deserved, there are no funds more scummy and in need of payback than funds that short small caps. The most well known fund in this game is Sabby Management. While some of you will have your skin crawl just by reading that name, others may have never heard of Sabby. The easiest way to explain Sabby's role in the market is that they are kind of like the Citadel for microcap stocks. They act as a figurehead but there is a web of funds in the background responsible for manipulation. We can see from posts such as these that this is sentiment that is well known by many:

What these funds do is they short the stock while trying to get into private secondary offerings into the company at the same time. That forces the company looking to raise cash for operations into deals at the worst possible prices. This maximizes profits for the funds at the expense of the company and its retail investors. 

If you want a major short squeeze, microcap stocks offer the best opportunity. We have identified four companies that particularly stand out:

Alfi, Inc. (ALF)

BriaCell Therapeutics Corp. (BCTX)

1847 Goedeker Inc. (GOED)

GeoVax Labs, Inc. (GOVX)

Why these four? Four simple reasons:

1. They are all recent NASDAQ or NYSE listings.

2. They have already raised funds, so there is no need to dilute in the near future.

3. They all have excellent business prospects with recent great news or news expected in the near term.

4. They all have warrants. 

The first reason is very important. These stocks have all listed on the NASDAQ or NYSE and raised funds in the last year. ALF was an IPO in May. BCTX uplisted to the NASDAQ in February. GOED listed last July. GOVX uplisted last September. 

Why is this important? Let's use XSPA as an example like in the Reddit post. While fighting for XSPA might be a valiant idea, the issue is these vulture funds have been at it for too long on it. Look at this chart:

The funds have been manipulating it for years. Back in 2015 it had a split adjusted price of $2,000. Now it's $1.48. There is no way it can come back from that. The shorts and hedge funds are too deep in the money. We have nothing against XSPA but this is just the sad reality. You can't win in an NBA game if your opponents are already up by 50 points. In order to win, we need to bet on stocks that are relatively new and have a clean slate. 

Here is a sampling of what Sabby owns according to Fintel, including GOED, BCTX and GOVX along with many other familiar manipulated small cap names. ALF is not on this list though its IPO is very recent so 13F filings may not yet be complete. But we are quite sure that this stock will have Sabby's hand in it as it fits the firm's investing demographic. 

What is going on with these four stocks, along with many others on this list is blatantly obvious to anyone who looks at the chart and price history over the last several months. Some days these stocks have only a few thousand in volume. Other days there are 10's of million in volume. On those days they go up on news on heavy volume, then get hammered down on relatively light volume to raid stop losses and kill momentum. 

Why would Sabby want to hurt the price of stocks that they own? Simple. Sabby, like Citadel is just a figurehead. There are many hedge fund players behind the scenes who benefit from volatility but also long term price declines. Shorts, hedge funds and other algo traders are manipulating the stock prices at the expense of retail shareholders who want to support a good startup company. Sometimes it works as they can force the company to do a financing at a cheap price and then cover after momentum is lost. Just look at what they have done to XSPA multiple times as the perfect example. But ALF, BCTX, GOED and GOVX have just raised cash. They are in little need of it and very unlikely to participate in any dilutions any time soon. Meanwhile, they are now in a good spot, having just released news or are about to release news or other positive updates. It's time to teach these shorts a lesson and win big at their expense. 

Q: Won't these stocks distract from other plays like AMC?

No, because they have such small sizes that they really won't impact the money flow into larger stocks. Stocks like AMC require hundreds of million or billions of dollars worth of buying in a day. These stocks would require only a few million dollars of daily buying to put pressure on the shorts. Here's a chart gathered from Yahoo Finance data to illustrate what we mean:

These four stocks combined add up to only about $550 million in market cap. GOED is the bulk of that. While the short interest as a percent of the float is around only 5% on these stocks, Yahoo's short interest data is as of May 28. As these stocks have had surges in volume in June, it's fair to assume that short interest is much higher. We will see in a matter of days when short interest is updated for the first two weeks of June.

Buy the warrants, create a squeeze

Another thing that these stocks have in common is that they all have warrants. The symbols are ALFIW, BCTX, GOED.WS and GOVXW. Warrants function very similarly to call options in that they are the right to buy a stock at a set price and that funds use them to hedge so that they can short the stock. The differences between warrants and calls are that warrants have a limited supply and that they generally have much longer times to expiry. These ones all expire in 2025 or later. This makes them very good to hold. If you buy short term options and the stock price moves against you for a few weeks, you lost most of your money. On these warrants, even if the stock price does nothing for a few weeks, you still have lots more time. 

Since there are a limited supply of warrants, if the public were to buy up a fund's inventory, that fund would get nervous and start covering their short sales on the stock since they no longer have the warrants to hedge. That would put buying pressure on the stock. This is similar to the gamma squeeze theory by using call options. Some might say that the call option impact can be much greater, but keep in mind that those types of gamma squeezes are on stocks with much larger floats. These four stocks have floats of less than 10 million shares. It won't take that much to cause a gamma squeeze.

We would like to focus on last Wednesday's trading of two of these stocks in particular. BCTX and ALF to illustrate the effect..

BCTXW has a strike price of $5.31. That means a warrant holder can purchase BCTX shares by submitting a warrant and paying $5.31. Therefore, BCTXW should be no lower than $5.31 below BCTX's stock price, or else there is arbitrage by buying the warrants, shorting the stock, exercising the warrants to close off the short and pocket the difference. On Wednesday, BCTX reached a high of $7.58. Therefore the warrants should have had a high of $2.27, but they had a high of only $2.15. 

ALF and ALFIW was even more extreme. ALFIW's strike price is $4.57. ALF hit a day high of $9.22. Therefore the warrants were worth $4.65 at the time it reached the day high. The high of the day on the warrants was only $4.00, $0.65 below their intrinsic value. Some of this can be explained by the relative illiquidity of the warrants compared to the stock, but not enough to explain a $0.65 variance. 

What was going on here? The stocks were getting into gamma squeeze territory. What the funds try to do is get people to sell or short the stock and buy the warrants, taking advantage of the arbitrage. This works to alleviate the buying pressure on the stock. But it can only work so long as the funds have a limited supply of warrants to work with in order to continue to play their games with no or reduced risk.

How do you stop this? Buy up the warrants, especially while the stocks are running. The warrants are in the hedge funds' inventory and they use them as hedges in order to aggressively short the stock. Even if the stock goes upwards, they can use their warrants to purchase the shares back at $5.31 or $4.57 instead of covering on the open market. If the inventory of warrants are bought up and held by retail shareholders, the funds would no longer have that insurance policy. They would get nervous and be forced to cover, enabling the squeeze. This is a similar kind of theory to buying up call options to try to start a gamma squeeze on large cap stocks. Since none of these four microcap stocks have options on them, hedge funds don't have any alternative route to try to create synthetic shares. They will have to cover quickly. 

The other obvious advantage of buying warrants are their leveraged upside. Of course, this applies to downside risk as well, but since there is so much time until expiry that's not such a huge concern in 2021.  This is a chart of the stock,  the warrant symbol, the strike price, the price of the stock if it were to double, the warrant value (defined as stock price less the strike price) and the percentage the warrant would gain if the stock was to double.

When the stock price doubles, the warrants triple in price or more. And because there is so much time to expiry on all of them, they don't have much more risk than the stock. Yes they could expire worthless in 2025, but 2025 is four years away. Most investors won't be holding for much more than a year.  

Buy the stock and the warrants of all of these companies, but let's focus specifically on ALF

It's important to understand that if you want to screw over hedge funds, buying the stock and warrants of all four of these companies is important. Just like how KOSS and EXPR sometimes run when GME or AMC start to run, these dissimilar industry stocks are going to be related because all the same hedge fund players behind the scenes are in control of them. When they lose control on one, it's easier for them to lose control on the others and create a snowball effect. With that being said, we think one of these is on the brink of a breakout, and that is ALF. It becomes clear when we compare the prices of each stock on June 15th when we first mentioned them to Friday's closing price:

ALF is up 19% in those three days, and has nearly tripled from its May 4 close of $2.90. Its trading has been very solid since it announced the installation of 10,000 digital screens in Uber and Lyft vehicles in Miami on the 15th. While many stocks in similar situations exhibit a "pump and dump" chart and sell off days after the news, ALF has had bullish action since then. The shorts and hedge funds tried bringing it down with weak opens on June 16 and June 17. But it has failed. We mentioned above about how the warrants traded below their intrinsic value last Wednesday when it blasted off to over $9. It happened again on Friday. The $7.96 close on the stock implies an intrinsic value on the ALFIW warrants of $3.39 from their $4.57 strike price. So the warrants closed 6 cents above any possible arbitrage scenario. But there were several times during the day when the warrants traded below their intrinsic value. The day high on the stock was $8.56, implying a $3.99 value on the warrants. But the day high on the warrants was only $3.75. 

The fact that this has happened twice in three trading days leads us to believe that the funds are slowly losing control on ALF. Continued purchasing of the warrants will eat up the hedge funds inventory and they will be forced or coerced to cover ALF stock to limit their risk exposure. This puts pressure on their finances which will make a short squeeze on the other three stock/warrant combos easier. This impact would likely spread across to other Sabby holdings to some extent, meaning any investor of Sabby owned stocks would be interested in seeing this short squeeze phenomenon spread like wildfire on Sabby's portfolio.