Thread by @FabiusMercurius

What is a SPAC squeeze?

Is it the new gamma squeeze? Or the new merger arb?
Or the dumbest way to make money fast?

Before I explain, take a look at these charts.
What do they all have in common?

Correct answer is "they all had a tiny crash, then a magnificent spike, then leveled off."

So what explains this strange phenomenon?

Turns out there's some systematic arbitrage to exploit in the deSPAC process!

If ur unfamiliar w/ how SPACs work, read:

https://twitter.com/FabiusMercurius/status/1403131858376826885

During de-SPAC (where sponsor merges w/ target), shareholders can "redeem" their shares before deal closing if they don't want to own the target.

When that happens the sponsor returns NAV (cash + interest) back to each investor & buys back their shares, removing them from float.

So now what happens when a SPAC has BIG redemptions? Like, when 90% of investors want to redeem?

For fun, let's say short interest on the SPAC is 20%.
Post-redemption, there's now a brief window of time where SI is 20% and float is only 10% -- i.e. 2x as much borrow as float! 😲

Perhaps this recurring pop following de-SPACing of low-float stocks is really a short-squeeze in disguise -- one inherent to the systematic design of the asset class.

Is it real alpha? If so how long will it last?
Will every SPAC w/ high redemption rally into its merger now?