The Snow Dilemma
Updated: Jan 8, 2021
Snowflake (SNOW) offers a cloud-based data storage and analytics service. It allows corporate users to store, analyze, exchange and securely share date.
The company went public on Sep 20 at the IPO price of 120$. In its first day it opened at 245$ and quickly climbed to 300$.
One of the more surprising investors in the IPO was Warren Buffett's Berkshire Hathaway. The unusual bet in a tech company, stemmed from Berkshire's insurance unit being a Snowflake customer, and being impressed from the company as "it was a product of structural change".
Berkshire now holds 6.1m shares, according to its 13F filling (which they bought at 120$, and have over 1B$ profit now).
Another interesting point in Berkshire's 13F was the fact that confidential information has been omitted from the public and filed separately with the SEC.
That means that Buffett is buying a stack in a company that he still don't want others to know about.
There been some guesses, and controversial names were mentioned, such as TSLA (although Buffett said he will never buy that, and obviously its price is unrealistic).
My hypothesis is that there is also some probability that he is building a much larger position in SNOW. With all the respect to 1.5B$ investment he already has, we know that he can make much bigger bets than that.
The lock-up expiration:
SNOW had its first lockup expiration (25%) on Dec (3 month after the IPO) and the stock was down to about 330$.
Another lockup expiration (25%) will be when the closing price exceeds 133% of the IPO price (280$) for at least 10 days in the 15 trading day period following the 90th day after the IPO. (Which can be in the beginning of Jan21).
The last lockup expiration will be on Mar 2021.
So if you believe in the potential and want to bet on the probabilities that Buffett is buying more shares in SNOW you can consider buying Bull Call Spreads on SNOW.
For example the C330 - C380 to Feb costs about 12.2$ and can pay back up to 50$ (3:1 R:R).
*I might already sold the above position by the time you are reading this.
However, keep in mind the potential selling pressure around the days of lockup expirations. Maybe it is wiser to initiate these spreads in those days.
Jan 8th update:
After selling the previous position I was waiting to the lock-up expiry date, and when it come on Jan 7th and the market moved up sharply as not many seller came to sell, I legged in buying Call300, and sold Call350 at the same price the next day.
Free spread with 50 points potential.
No dilemma now :)
The following trade frame is an example for educational purpose only.
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