$WWE – Can you S.M.E.L.L. what the stock is cooking?

TLDR:

  • High SI. 8m shares shorted (~$460m worth). 18% of float.
  • Low float. Also, 8m shs (20% of float) is permahedged, see below. SI is thus 22% of float.
  • Solid fundamentals, if it matters. $1b rev and growing, even through COVID.
  • Live events returning in July.
  • Rumors of an acquisition.
  • A beloved provider of memes.
  • Shorts are just now starting to feel the heat. It'll be hard to cover (low float, low volume)
  • Options are cheap as fuck. IV is sitting at 35%.

Positions:

  • Jun 18 $65, $70
  • Jul 16 $60, $65, $70
  • Jan '22 $60 (the majority are here)

It's clearly short hunting season and it looks like we've had quite a healthy catch. Short sellers have their fingers on the panic button and are bailing out at any threat of a rabid pack of retards stomping around, pounding their chests, talking shit, and smashing their ill-gotten gains onto the backs juicy meme tickers. And, yet, the shorts do not fear the originators of such apeish behavior: Pro Wrestlers.

How I found WWE

Let me introduce to you my patented SMELL system. The acronym is reverse engineered to make sense for this ticker and so it might seem like I was piledrived as a child, but bear with me. It's important to put memes first. Here it goes:

  • Short Interest is high
  • Market cap is high
  • Extremely Memeable
  • Low IV
  • Low Float

Basically, I sniffed around for stocks that would benefit the most from even a tiny amount of short covering. Probably the most important thing here is Low IV. That means the stock has to go up less for me to profit and later expirations are cheap (because I can't time wtf you guys are doing). But it also means if the ticker catches fire the IV will spike up, further resulting in massive profit.

I was quite surprised that WWE came up high on my list. As I dug into it, I was expecting that the SMELL was from sweaty redneck chads wearing spandex, surrounded by thousands of teens in Iron Maiden t-shirts who have yet to discover deodorant — but it turns out the odor was instead the smell of bears pissing themselves.

I: Fundamentals

I don't know anything about books of companies. You're asking the wrong guy.

However, this guy on SA, and many others, seem quite excited about WWE. Perhaps as children WWE superstars provided some semblance of a father figure to them. Or, perhaps, they enjoy having their homoerotic fantasies fulfilled while writing about stocks. Either way, they did all the work. So go read their stuff and you'll find WWE is solid, possibly Rock solid.

For those even lazier than myself, here are the cliff notes:

  • They are effectively a monopoly on pro wrestling, which is apparently growing in popularity
  • They make money from Media, Live Events, and Consumer Products.
  • COVID wasn't too bad for them. It cut Live Events, but Media revenue popped up.
  • Live Events are coming back… and they're taking it international. This will significantly boost their revenues, especially since during COVID it was zero.
  • Strong social media following (more YouTube subs than NBA, NFL, and GME combined). More IG followers than NFL.
  • PT of $75/sh from some fancy FCF model thing
  • Lots of aquisition suitors

II: Catalysts

I'd be kidding myself if I thought you guys cared about catalysts, or that they even matter right now, but here are two big ones anyway.

Live Events Resuming

WWE will resume touring. Despite this revenue being missing in 2020, they managed to haul in nearly a billion dollars. So the second half this year, and all of next year, is going to be pretty good. Not only will revenues be driven up, but fan engagement and brand appeal will go up as well. WWE's IP has a ton of value and they've leveraged it well during COVID.. as live events come back and increase engagement, it should provide some synergy to everything else they sell — PPV, IP rights, merchandise, etc. That's just my opinion, so please do not let the excitement of the return of live events distract you from the fact that in 1998, The Undertaker threw Mankind off Hell In A Cell, and plummeted 16 ft through an announcer's table.

Video Games are booming

WWE Supercard is Take Two Interactive's (a $52b company) highest grossing mobile game, and it's growing at around 23% YOY. A lot of that money will flow into WWE. WWE also sells rights to other titles. As video games continue to grow, so to does WWEs revenue.

Rumors of acquisition

About a week ago, WWE cut some talent assets. Some apparently important guy tweeted that it's likely due to them cutting costs and preparing for an acquisition. Here are Reddit wrestler fans discussing this (1200 comments)

Rumors aside, there is a strong case for WWE being acquired, should McMahon decide to sell. From the SA article:

It is not unrealistic to suggest that WWE could one day be acquired. If McMahon indicated an interest to sell the business, there would be no shortage of potential suitors given the scarcity value of its content. Whilst Disney, Fox and Viacom could be prospective interested parties, arguably top of the list is Comcast, who may decide owning WWE may generate more value to its shareholders than perpetually leasing its content.

III: Technicals

This is closer to my specialty, and it's why WWE is my new favorite squeeze play.

High SI: Exchange reported SI around 8m shares as reported May 14. Ortex shows this number has held steady even throughout this squeeze cycle. I'm imaging the shorts are trying to slowly cover to keep this under the radar, but can't help but push the stock up little by little. While the SI % Float appears to be 18%, there's more to it than that…

Low Float: The float on this is around 44m shares. However, the company is hedging it's convertible notes (representing about 8m shares if converted) via ISDA OTC contracts with 3 banks: JPM, MS, and Citi. Basically, these banks sold $38m of options, at a strike of $24.91. These are deep ITM options, that are pretty much fully delta hedged. So if these banks were doing their jobs and deltahedging, that's 8m shares of commons they hold, locked up. That takes the float down to 36m shares.

Low Volume: The volume of this ticker is insanely low. So, there's not a huge market of interested parties looking to buy/sell shares. That basically means as shorts cover the price will move up more. Higher days-to-cover, and higher impact of gamma ramps, which I'll get to later.

Low IV: To top it off, the options on this thing are cheap as well. I'm holding LEAPs and some July's in the hope that if there's any kind of squeeze, the IV will pop up substantially. That's where the real gains are in these squeeze plays… getting in before the IV pops. CLNE had a similar situation, but it's IV was originally around 80, not 40. It popped up 3%, but the options values went up 10-20x overnight primarily from the IV jump. It's insane to me IV is this low on WWE.

Pressure on the shorts: The stock is at levels last seen in Dec 2019, so anybody shorting it after then is red. The average age of SI, according to Ortex, is 102 days. It's pretty safe to say the majority of shorts are already underwater at this point.

So, putting it all together: SI % Float appears as 18%, but it's really closer to 22%. That's good enough for me because: the volume is low, the shorts are in the red, and it's squeezing season. Most importantly, the IV for this is priced as though it's some boomer stock.

With IVs this low, it doesn't take much for options to print bigly. The Omega, aka elasticity, of options is huge. Omega measures how much the option value moves with respect to the underlying. For example, with July 16 $65C, If WWE goes up .1%, option value goes up 1.6% (~16x). That's because IV is so low. I'll happily take those odds.

IV: DeltaFlux Table (gamma/charm/vanna)

DeltaFlux Tables Explained

OI as of: Tue Jun 8 (at open) – Date used for DTE: Tue Jun 8, 2021 15:09 EST
Weighted Avg IV: 40.36%, Shares: 45,260,000, Float: 44,740,000, Avg Vol (10d): 880,220

Price Point # Shares DeltaHedged ← % Float 1% Price ∆flux (sh) ← % Float / % Avg Vol 24hr ∆flux (sh) ← % Float / % Vol 10% IV ∆flux (sh) ← % Float / % Vol
$40.00 6,920,224 15.47 40,845 0.11 / 4.64 -1,233 0.00 / -0.14 -46,516 -0.10 / -5.28
$42.50 7,169,011 16.02 41,289 0.11 / 4.69 -1,307 0.00 / -0.15 -51,266 -0.11 / -5.82
$45.00 7,406,796 16.56 41,942 0.11 / 4.76 -1,270 0.00 / -0.14 -54,892 -0.12 / -6.24
$47.50 7,635,904 17.07 42,936 0.12 / 4.88 -1,415 0.00 / -0.16 -57,083 -0.13 / -6.49
$50.00 7,861,215 17.57 45,256 0.12 / 5.14 -2,088 0.00 / -0.24 -57,647 -0.13 / -6.55
$52.50 8,091,075 18.08 49,105 0.13 / 5.58 -2,524 -0.01 / -0.29 -58,677 -0.13 / -6.67
$55.00 8,326,671 18.61 51,674 0.14 / 5.87 -1,531 0.00 / -0.17 -62,635 -0.14 / -7.12
o – $56.54 8,469,388 18.93 51,425 0.14 / 5.84 -607 0.00 / -0.07 -65,782 -0.15 / -7.47
$57.50 8,555,344 19.12 50,592 0.14 / 5.75 -121 0.00 / -0.01 -67,591 -0.15 / -7.68
c – $57.86 8,586,795 19.19 50,173 0.14 / 5.70 34 0.00 / 0.00 -68,215 -0.15 / -7.75
$60.00 8,763,441 19.59 46,894 0.13 / 5.33 714 0.00 / 0.08 -71,266 -0.16 / -8.10
$62.50 8,945,526 19.99 42,202 0.12 / 4.79 1,200 0.00 / 0.14 -73,525 -0.16 / -8.35
$65.00 9,101,538 20.34 37,351 0.10 / 4.24 1,390 0.00 / 0.16 -74,281 -0.17 / -8.44
$67.50 9,233,926 20.64 32,877 0.09 / 3.74 1,327 0.00 / 0.15 -73,659 -0.16 / -8.37
$70.00 9,346,324 20.89 29,025 0.08 / 3.30 1,176 0.00 / 0.13 -72,150 -0.16 / -8.20
$72.50 9,442,340 21.10 25,778 0.07 / 2.93 1,035 0.00 / 0.12 -70,168 -0.16 / -7.97
$75.00 9,524,960 21.29 23,023 0.07 / 2.62 946 0.00 / 0.11 -67,957 -0.15 / -7.72
$77.50 9,596,458 21.45 20,627 0.06 / 2.34 919 0.00 / 0.10 -65,620 -0.15 / -7.45
$80.00 9,658,500 21.59 18,482 0.05 / 2.10 936 0.00 / 0.11 -63,159 -0.14 / -7.18
$82.50 9,712,319 21.71 16,517 0.05 / 1.88 969 0.00 / 0.11 -60,530 -0.14 / -6.88

% Float per % underlying change values of >0.30%+ get me excited, and we're only at 0.14%. However, I'm a little bitch and have high standards. 0.14% float deltahedged per 1% price move is still significant. For reference, right now, CLNE is at these numbers. Most tickers are well below that (around 0.05%).

I wouldn't say there's any significant gamma going on here, yet. The options chain is pretty scare, aside from the gazillion options held by those banks (which are considered in this chain). You can see 20% of float deltahedged — that's primarily from those options.

What really gets me excited is the % Volume numbers. The gamma ramp is much stronger in that regard — if you believe volume is more indicative of lower liquidity than float, then 4.00%+ are sizeable numbers. Put in English, if the stock moves up 1%, then 5.75% of the daily volume will need to be purchased as a deltahedge (assuming all options written are deltahedged). To me, that's significant, and can help multiply any upward movement.

The best part? The chain is rather scarce. Throw on a few thousand $60/$65 calls into the OI, and the ramp will extend out and become stronger.

V: Conclusion

If you want a low-risk, high-reward play on squeeze season, this is my pick. It's got everything, and the options are dirt cheap. On today's 3% move, even my Jan leaps printed 12%. My FDs are up 30-60%.. and I think this is only the beginning.

If you want to play the company on fundamentals, but still have some exposure to a squeeze event, you cannot go wrong with Jan LEAPs. Stay ATM or just tad OTM (if you want to collect on IVs going up).

If you've made it this far, you now know what the stock is cooking: It's tendies, you retard.

submitted by /u/pennyether
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