Personally, I hate cliches. I hate the MMQB after thoughts that people throw out there to justify random acts/events. Comments like “Rome wasn’t built in a day”, or “buy low sell high”, and “no one ever went broke taking a profit” really annoy me. I don’t find any substantive value in any of them. I find them a waste of time and pointless.

With that said, one of my least liked cliches he old adage that claims “Hard work pays off!” This comment is bullshit. I’m not claiming that everyone who works hard will fail or that no one that has worked hard has succeeded, I’m just saying that the belief that hard work is causal of success is inaccurate. Yes, many times when you work hard you will find success. Sometimes however, regardless of how hard you work, you won’t find any success. Sometimes, working harder is actually a detriment to your overall success.


If there were ever a cliche that I believe in it is the following:

Work smarter not harder.

In the context of markets, much of the wealth that is made in the markets is not made by working “harder” but rather by being smarter. The (in)famous Jesse Livermore pushed this notion in multiple forms of “Buy right sit tight.” My favorite is highlight below.


It was never my thinking that made the big money for me, it always was sitting.
— Jesse Livermore

I’d like to contextualize the above rant and the quote to give you an idea of how some of the biggest winners come quickly and by doing the least amount of work. I will outline to you a powerful pattern that has helped me personally grow my account to where it is today. Some of my largest winners have come from these type of setups and moving forward I am almost certain that this pattern will continue. Along the way, I hope to not only share a pattern setup, but to pass along an important lesson that I learned on early in my career.


The Setup

One of my personal favorite setups comes in the form of an IPO range breakout. The setup is pretty simple, a break of a previous high set in a (relatively) new vehicle. In this case, we’re looking for new stocks that have broken out above their IPO high. These setups are powerful for a few reasons, the two I want to focus on are:

  1. Artificial Demand

  2. Limited Supply

Basically, a bank or group of banks put up the money to fund the IPO and they “buy” the shares of a company before those shares are actually listed on a stock exchange. These banks will make their money on the overall difference between what they paid pre-IPO and what the shares are worth when they are officially listed.

It is important for these banks to price their stocks appropriately. Once priced, enough demand must occur for the stock not to fall once offered to the public market. After going public, a stock comes with a lockup period. Though that period varies in length, typically it lasts somewhere between 90 to 180 days. This is important for several reasons, not least of which it creates an impetus for the stock to remain at the open price or better.

With larger shareholders being prevented from selling for at least 90 days, a stock’s supply is restricted. This restrictive supply allows for a stock’s price to accelerate quickly as it creates an artificial demand for that stock when buyers step in. Simply put, it creates somewhat of a one-sided market and it becomes easier for the stock to go higher.

Below I’m going to share with you this setup in action with some IPO’s from the past few years. I’ve also included ETH into the mix as well to illustrate that this isn’t limited to just stocks.

In the above images you will notice that there was a range breakout point where the issues started to accelerate. This breakout suggested to investors two things.

  1. The issue was priced appropriately

  2. There is new found demand for the issue as it broke above previous highs

Some of the reasons this is a powerful setup in new stocks is because of the above explanations. You know that insiders are stuck in the stock and cannot sell, you also know that it is in the banks’ best interest to see a successful IPO. These two focal points create a catalyst as buyers rush to buy and push the stock higher. The above shows you just how quickly you can multiply your money with these breakouts.


Even a Broken Clock is Right Twice a Day

I want to stress that this is not a means for selecting investments, it is solely for the purposes of trading. So pump the brakes all of you “fundamental investors” this is not where I’m coming from. Markets are irrational, and when the “hottest new girl” walks into the bar the credit card limits go out the window.

With the artificial floor and lack of supply acceleration can occur dramatically. The path of least resistance once a high is taken out is higher for sure. Because of that, you almost never want to take a contrarian standpoint. Most times that ends up the equivalent of trying to stop a train with your hands.

There are times where real catalysts meet this artificial lack of supply and breakout demand. In these instances a crowning apex of euphoria squeezes speculative investors into a tizzy of orgasmic bubbling proportions. In these instances, the sizable cash droves is enough to make anyone look like a “genius” and to let everyone know the following:

DON’T BE A FUCKING HERO

I want to pick on the worst bear pundit we all know to show you that even a broken clock is right twice a day and it is better to be late than early to when trying to stop a train.

For the sake of disclosure, I was late to the TLRY party and my first trade in the stock did not come until the 60’s. So with that, I am not professing that I’m some amazing investor/trader or anything like that. I am just highlighting that the path of least resistance is higher until it is inevitably not.

The appropriately symbolized lemon himself, Andrew Left, happened to catch the opening innings of the lightning in a bottle that was to take place in the Cannabis frenzy. As noted from his twitter feed, Lefty highlighted a BUY in TLRY on August 15th. Less than a week later, TLRY broke free from its IPO range.


The following quote is taken directly from Citron’s bullish report on TLRY:


Today we state that you would have to be ‘high’ to short any of the marijuana names based on the recent investment by Constellation in to Canopy Growth, the largest investment in the space ($4bn).The premium paid to market shows confidence by Constellation that could rattle any short seller.
— Citron

The irony in the above quote is that Left is telling you what he should actually be listening to. You would be “high” to short weed stocks given the investment by STZ into CGC. That investment gave the rubber stamp of approval that weed stocks were en vogue and further validity and investment may occur.

The problem with the above for short sellers was the limited number (and still limited number) of investment vehicles to get weed exposure. Below you’ll see that TLRY blew past citrons price objective in just 12 days.

TLRY 45 Target Reached Highlighted by Purple Arrow

TLRY 45 Target Reached Highlighted by Purple Arrow


Don’t Be a Fucking Hero, Nostradamus

If Lefty would have left things as they were, he could have continued to wax poetic about how brilliant he thinks he is like he did when he recommended the VRX short. Instead, his compulsion to be a hero and to “be right” got the better of him. And like we’ve always seen from him, his ego is much bigger than his actual trading recommendations. On August 24th however, Lemonboy couldn’t help but remind you of that one time he got something right and told you he was out for a 70% profit. Had he just left things as they were, or simply just trimmed his position, he would have been able to capture an additional ~25% just one day later as the stock gapped up to the 50’s on the 25th.

Lemon Boy Cashed Out

Lemon Boy Cashed Out

After cashing out for 70% in a little over a week, Left began his feeble attempt to stop the TLRY train with his fists. On September fourth, after the stock had nearly tripled since he had it at a buy, Left put out two hits on the stock using Twitter. In them he declared that he was “shorting stock” and that the stock’s price was overvalued.

I want to highlight the importance of the above statement. It is important for clerical sake that we share that Lemonboy stated he’s “shorting stock.” The importance here is that you have to pay to borrow common stock and secondarily your losses are infinite. I also will highlight that there was intent to move the stock in the direction of his position (like always). Lastly I want to highlight that though the move in TLRY was astounding, technically speaking, it continued along a very well defined path.


Lemonade

Below you will see a timeline photo of Left’s stance via his twitter account. Along with it you will see TLRY’s chart on the 60 min timeframe. You will notice that the stock was in a steady upward trend and was bought against trend line and sold against the upper trend all along its path to the 300 high. Secondarily, I want to highlight that Left sold for a 70% profit, and as of 5:51am PST on September 19th (premarket hit piece), he was “still short” a “manageable” (laughable) position at an ~200%+ loss. Just wrap your head around that for a moment. The trend was your friend, there is a catalyst for demand, there is artificial demand, and there is an artificial floor, and this dude can “only” hold for a 70% profit. Yet, he has enough stomach to counter all those reasons to hold a 200% loss.

Lemon Squeeze

I am not going to lie to you and pretend that I was a holder of TLRY the whole way up. I am also not going to pretend that I go tin early. I am however going to tell you that i continued to echo that the stock was not a short along its path. The pink arrows below highlight the buys as I/we took them. Our objective was simple, we were attempting to buy into support or on a consolidation breakout. The image below highlights our buys and our sells. The buys are highlighted with pink arrows and the sells are highlighted with the blue arrows.

The overall theme I’m trying to point out is that until you get a capitulatory event, the bull case remains a bull case. In case of new issues, stay long until you see a catalyst that suggests it’s time to get out. Secondarily, I am NOT suggesting that you remain long the entire time, nor am I suggesting that you not take profits. I am merely saying there are times along the way where front running is worth the risk for a quick turnover. That quick turnover will results in more opportunity for the stock to set up again. As the stock bubbles, and yes, these stocks definitely bubble, the “hard work” will be to ignore everyone and get/stay long. The trade itself isn’t the hard part, staying away from rational thought is.


PAYDAY

As shown above, you see my various buying and selling in TLRY. Some of the posts I just copied directly from my Twitter while others I took the time to outline the trade in more detail. Put it simply, After 127 failed and 100 held, the stock was telling you that a retest of the 127 level was in order. I was able to go long 5000 shares at the 116 level. I was able to leverage this position with the Sep21 145C. In nothing more than sheer luck, the stock gapped up to the 130’s overnight and my position was secured to the upside. In that moment, I simply rolled my calls up to higher strike points and capitalized on the options. Had the options been longer dated, I likely would have closed out at least half of my common shares and let the options function as a synthetic stock. Since they were weekly options, I did not want to risk the premium erosion and felt the stock gave me the best leverage and control.

As TLRY continued to ramp higher intraday I was able to continue flipping out of calls until I was left with the 170 & 175 strikes on the bell. With now approximately a $40 cushion I still maintained the 5000 share position into the bell. Yet again, in a matter of nothing more than blind luck, I woke up to TLRY’s stock vaulting north of 200. I took off 40% of my common stock position and set a stop minutes before the bell opened to let me out of my shares should a selloff ensue. This allowed me to focus my attention on my calls that were now over 10x their value. After having been able to capitalize the gains and being stopped out, I was able to avoid a train wreck selloff in the first five minutes that put TLRY back at 175.

This avoidance allowed me to keep close watch on the stock and re-enter to the long side should the stock break to new highs. As a note to those who have never been a part of a short squeeze, a lesson I’d learned long ago is that when a stock that is in squeeze mode maintains buying pressure after 2:00pm it is ripe for margin calls and further upside.

ONE SHINING MOMENT

Secondary to the margin call risk, the stock had held above it’s trend top and was primed for a blowoff. This ended up coming to fruition as the culmination of events took place just after 2pm. TLRY was able to explode higher and move in integer form until the 300 level was reached. As it broke out, I re-entered to the long side once again in both calls and shares. The stock continued relentlessly and I continued to swap upwards. From 250, to 255, to 265 to 310 calls. These calls all moved in multiples to the point where the bid ask was wide enough to drive a mack truck through it. As the stock approached $300 I was able to completely unload my calls and my common stock for a move unrivaled in my trading career. Though I’d been able to make similar trades before with other IPO’s previously, nothing matched the size and magnitude of this one.

By the time that TLRY rejected and started to break down I was out. To give you an idea of how crazy the swings got, between 02:51:24 and 02:51:25 the price fluctuated $7. By 2:52pm the stock was already in the 270’s.

At that point, I’d set an alert to notify me if the premarket high, and breakout level, were to break. Once that broke I was under the impression that being a seller, or shorting, was the way to go. Since the spreads were insane, I was forced to play ridiculously far out of the money and treat it as a lottery ticket. Below you see the breakdown level highlighted in blue and the trade I took on the way down.


What’s the Point?

The importance I want to stress out of all of this is you never know how far mania can take an issue. When group dynamics are involved and when pandemonium sets in, there is no way to dictate how far the pain trade can go.

Secondly, I want to highlight that even with all that action and with all that bluster and with all the opportunities to make money, our boy, “Lemon Head Left”, is STILL (hypothetically) underwater by ~70% (from the close on Friday) from his tweet suggesting that the bubble will burst.

He could end up “making money on the trade” but I want to note the importance of timing. Had he simply waited, or rode the trend, or even managed a small position, he could have seen a 900% return in a matter of weeks. Instead, trying to thread the needle has cost him dearly.

For me, this was the first time (of many I hope) that I’ve made that kind of money in that short a time period. I was able to clear north of $720,000 on these trades in a matter of two days. I currently remain short (at time of writing) and will repeat the above process in reverse until the issue tells me not to.

TLRY is now in a downtrend from the breakdown level

TLRY is now in a downtrend from the breakdown level

If you take nothing else away from this writeup let it be this:

IPO range breakout stocks with cult followings are not the types of breaks that you want to short. That is the “hard work” trade. The “smart work” trade is to join the bunch and take the easy money while it lasts.


SHAMLESS PLUG

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