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Original Post
Araphoren
Dec 23, 2021
20.06%
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VCRA - the Boomer Rip: +100% institution holds & low IV hedges
bullish
This is happening real-time (read: now) so I'm going to get right to the point.
Vocera (VCRA) provides and sells wireless solutions (software and hardware) to hospitals and various industries. They're profitable and doing great. More later.
What you need to know is that shorts are closing for EOY rebalance. This is a huge problem for them as institutions hold so much of the stock that the trading float is literally virtually 0. The liquidity is so bad that even small shorts closing out are spiking all time highs. Meanwhile, calls are very cheap since nobody knows about this boomer stock. Open interest on the Jan exp is effectively 0 and implied vol is only 50%\*.
As shares and calls are purchased, I am betting on a sustained bleed up of closing shorts, low liquidity, and OTF long term holders who aren't selling. My aim is far beyond the 70c strike.
Summary
- Non-existent float: The entire float is held by long-term OTF holders who aren't selling (largest 30 firms own 92% of all shares). This is very important.
- Short rebalance: Short shorts are in the process of closing out by EOY rebalance and are spiking the price to ATH.
- Historical IV has been low while the daily moves are high. IV is 50%. Calls are cheap for where I believe the price will go. As an example, the 60c at close yesterday was $5.8 (b/e at $65.8), which we're close to hitting already.
- Continual upgrades: Firms are exacerbating the process by issuing upgrades encouraging new longs to buy.
About
Vocera (VCRA) offers the leading platforms for workflow and communication. They create and sell both softwares and hardwares to healthcare professionals and many retail service enterprises. They are killing it.
Vocera is deployed in nearly 20% of all U.S. hospitals. Their expanded deployments, while aggressive, have only been matched by further company developments. For example, VCRA's pivot to software-led enterprise sales was utilized in a Cleveland Clinic expansion in Q3 as one example in their second largest deal ever signed. They have been winning contract after contract flawlessly.
VCRA delivered a nearly perfect Q3 with revenue, adjusted EBITDA and adjusted EPS beating consensus estimates. FY21 was raised for the 3rd time this year.
Recent upgrades include:
Dec 20: Hallum $71 outperform
Nov 29: Sandler $68 overweight
Nov 22: BTIG $70 buy
So what, great company? Well firms have been loading up nonstop and now we have yet another fully share-utilized company.
Eight Years of +100% Institutional Holdings = null float
Institutional holdings have shown +100% for 8 consecutive years because so many of the firms are OTF holders who won't sell. This is very important. The 30 biggest funds hold and have been holding 31.7m shares (that's 92% of all outstanding shares) for years now. They won't be selling anytime soon. These funds hold for 5, 10, 20 years. I included the share history below. Note that there are no lock-ups expiring. There are no warrants. There is no convertible share trap waiting to explode. It is simply a small float.
I'll say it again: the largest buyers aren't selling and leave less than 3m (true number is closer to 0) shares for shorts to purchase to cover their shares. Lower float = lower liquidity = stronger moves.
Rally into EOY
“One should note that large short positions likely need to be closed before January, which is likely to see a small-cap, value and cyclical rally… We believe these conditions are not met, and hence this market episode may end up in a short and cyclical rally into year-end and January.” - JP Morgan's Kolanovic, Dec 17 2021
As funds rebalance and close out positions before January, the low liquidity environment of VCRA will prompt large losses leading to more shorts covering.
Shares outstanding: 34.8m (bloomberg)
Institutional shares: 31.7m-34m (bloomberg)
Float: 0-3m shares
Short interest: 3.5m (FINRA)
Short interest % of float: 100% or greater
There are no incremental flows to this stock. The fundamental momentum pushing this stock higher is enough to create substantial gains in price due to shorts rebalancing alone. Factor in a gamma and vanna spike due to introducing options, and what results might have some fireworks.
The contracts are priced with low volatility
Historical vol is pretty low compared with the large daily moves. As an example, the 60c at close yesterday was $5.8 (b/e at $65.8), which we're close to hitting already. The spreads are jumping around - some brokers don't even show the correct numbers.
Of course IV will increase as calls are purchased, but how the MM will react is unknown whether it is via purchasing shares or hedging volatility via selling other contracts. No contracts are being opened for Feb and beyond today so I'm assuming shares are being hedged.
Positions
+ others and shares. This is a slow bleed up. My aim is to hold these through the 31st though moves can be quick and sudden in the near term.
Cheers
update 12/22 1:30pm
New strikes, as predicted. Closer dated are more impactful
4 min
72.50
Target Price
6/ 10
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