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Day Traders Now Targeting SPACs

The day traders buoying GameStop stocks are now moving into special purpose acquisition companies (SPACs), The Wall Street Journal (WSJ) reported.

SPACs are blank-check companies that merge with other companies to take them public, and they’re rising over 6 percent on average in their first day of trading in 2021 compared to last year, when they were at 1.6 percent, according to WSJ.

Day traders are now putting their money into SPACs before even knowing what they’re buying, WSJ reported. At that stage, SPACs are just piles of cash, and investors are gambling that they’re going to get an attractive deal out of it down the line.

Although there are risks, many investors are jumping in headlong, showing how the online investing platforms and social media groups have spurred individuals to explore the various areas of the stock market, WSJ reported. Lately, they’ve been skyrocketing previously-unprofitable companies like GameStop into the stratosphere, and the trend is now playing out in SPACs as well as other things like shares of silver miners.

Another sign SPACs are becoming more popular among individual investors is that several SPACs and affiliated merged companies have joined GameStop and AMC on the list of companies restricted by Robinhood, the brokerage app popular among day traders.

The amount of money pouring in, according to WSJ, has worried investors, who think everyday traders “don’t understand” the realities of the market, with recent losses like electric truck startup Nikola and healthcare firm MultiPlan, which merged with SPACs, not deterring the day traders.

PYMNTS reported that the recent drama over the GameStop stocks spurred by internet forums poses numerous questions over what the long-term ramifications could be, and whether it’s a victory for hedge funds or a tale of an underdog coming from behind to win.

AMC, which also saw bountiful trading, has been allowed to step back from the edge of bankruptcy, erasing $600 million in debt and getting another $300 million in capitalization.

And there could be hearings in Congress over Robinhood’s decision to suspend trading coming down the line, which saw support from polar opposite ends of the U.S. political spectrum like Rep. Alexandria Ocasio-Cortez and Sen. Ted Cruz.

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