The Wrap: Icarus - Stake Global

Archegos Capital’s US$20b meltdown, a look back at how Stake traders invested in the vaccine and how the market is reacting to the Biden Government.

5 Hottest Stocks on Stake

Archegos Icarus

In an era of reduced travel, Bill Hwang was still able to book a return trip to US$20b and back again.

A formerly unknown operator, Bill Hwang runs Archegos Capital; a fund now recognised globally. Over the last eight years, Hwang increased his fund from US$200m to US$20b in assets. As impressive as that number is on the surface, understanding how 100x was possible is startling.

Hwang made use of leverage; a lot of leverage. For every $100 of investing, $85 came from their broker (85% leverage). If the $100 investment doubled, $115 would belong to Archegos and only $85 would be repaid (before fees). If the $100 investment fell just 15%, the stocks would need to be liquidated to repay the bank; the infamous margin call.

Now, Archegos began their investment journey by leveraging into momentum stocks in the tech space. As the price rose, the fund would increase its leverage.

This began a self-fulfilling, albeit dangerous, cycle. Archegos would invest, the stock price would increase, Archegos would increase their leverage and invest more into the stock, prices would skyrocket, etc. Names like Viacom ran from $20 to peak at $100 last month.

And then the inevitable happened. Stocks started to fall. Hwang was expected to contribute US$300m to Viacom’s stock issuance. After a bad night in Asian markets, Archegos was unable to foot the bill. The stock issuance was inadvertently completed without Hwang’s contribution. As the market caught wind, Viacom plummeted 50% in the last week of March. As the largest shareholder in the company, Archegos was forced to liquidate as the margin calls came in.

Archegos called together a meeting with all brokers to strategise an effective unwinding. Not all parties were willing to leave a decision to negotiate and compromise. Goldman Sachs dumped billions in stocks in indiscriminate block trades. US$35b was wiped off the market as names like Shopify and Tencent Music were sold off. Other banks were caught with losses as overleveraged positions were not sold in time. Hwang’s portfolio sits at a fraction of what it was before.

More information will arise in the coming months as the dust settles. A story rivalling Billion Dollar Whale and not far from the Big Short will no doubt receive the attention it deserves.

One of our favourite finance writers, Bloomberg’s Matt Levine, breaks it down perfectly in his blog here including how such a situation was possible in the first place.

Here’s a great Twitter thread for those looking for a TL;DR.

Stock Pricks

11th of February the World Health Organisation recognises a mysterious and previously nameless killer. By the end of the week, Covid-19 was an infamously familiar name in every home, classroom and office.

While panic, fear, and even suspicion took over, behind the scenes, teams of scientists and researchers took to the labs and began planning a solution for a problem that they didn’t yet understand.

Naturally, interest to invest in what was seen as a world-saving vaccine piqued. Investment in names like Pfizer, BioNTech, AstraZeneca, J&J and Novavax soared.

In early March, the Solidarity Trial began. Covid infected patients were treated with existing medications. Drugs like Plaquenil (hydroxychloroquine) dominated headlines as a potential answer. Plaquenil manufacturer Solyn (SNY) saw an uptick in trade activity but most avoided the stock. By July, the WHO had discontinued all research into the drug.

The investment community was waiting for a specifically developed vaccine. Moderna (MRNA) was the first manufacturer to capture their attention. In the first two weeks of July, the stock rallied 50% on the back of positive phase 2 trial results and a coincidental Nasdaq 100 inclusion. Their preliminary vaccine showed antibody numbers 4x times greater than those found in recovered patients. Promising progress.

Thousands of Stake users traded US$8m worth of Moderna over this period. The stock had barely traded that much volume in the six months prior. To this day, Moderna remains Stake’s most traded “vaccine” stock with over US$40m in trade volume.

The coming months would prove the most pivotal if a vaccine were ever to become viable. The biggest vaccine manufacturers were engaging in the final stages of their trials.

By November, the results were in. Moderna reported a 94.1% efficacy rate; similarly, Pfizer’s vaccine posted a 95% rate. The simple liberties we took for granted: borderless travel, dancefloors, and even hugs with loved ones were now looking realistic. While deployment could take years, there appeared to be a solution to the pandemic. Moderna rallied 100% during the month, Pfizer was up 20%, BioNTech gained 40%. Then came December.

December was a poignant reminder of the situation’s fragility.

On one side of the world, the CDC had approved several vaccines for deployment in the US. In the same week, a new strain of the virus was detected in South Africa. The discovery sucked optimism out of the markets as vaccine stocks began to tumble. Not only was this variant more contagious, but it could potentially evade vaccine-driven immunity. The major vaccines reported reduced efficacy against the strain as it spread to other parts of the world. Thankfully, case numbers remain relatively low. On top of the South African strain, there are constantly new mutations developing worldwide. Scientists concede that this may mean a new vaccine is necessary annually. For now, the world is dealing with the biggest threat.

Three months into the new year, 550m doses have been administered worldwide. Keeping in mind that most vaccines require two injections, Israel leads the world with 115 doses per 100 people. The UAE, UK, Chile and USA round out the top 5.

Vaccine stocks remain amongst the most popular on Stake, consistently trading in our top 100 even as the stocks edge into the green over the last month.

Top 5 Gainers

  • DMY Technology (DMYD) +54.3%
  • Greenwich LifeSciences (GLSI) +53.3%
  • Conns (CONN) +51.3%
  • ChargePoint Holdings (CHPT) +48.6%
  • Vuzix (VUZI) +36.2%

Top 5 Fallers

  • ThredUp (TDUP) -36.3%
  • ImmunityBio (IBRX) -23.8%
  • Ubiquiti (UI) -23.3%
  • Acadia Pharma (ACAD) -18.4%
  • Humanigen (HGEN) -17.9%

Trade Teaser

A man in a suit rides a bicycle. A man in jeans rides a unicycle. What’s the difference? Answer to last week: Duck or tree.

What We’re Reading | Political Beta by QuiverQuant

We’ve recommended the content QuiverQuant produces in the past. In a recent research piece, they analysed “political beta”. Data analysts measured the way specific stocks moved based on changes in Biden and Trump’s likelihood of becoming president.

A few months after the US election, the QuiverQant analysis looks at how stocks with positive and negative Biden beta performed now the Democrats control the government.

It’s a great read to understand how meaningful data analysis is done as well as the specific market takeaways.