After seeing $FB down 23% afterhours, I saw some comments talking about margin calls happening tomorrow. And that made me think, is there anyway to exploit these theoretical margin calls for our profit?
A fund likely to get margin called will be overleveraged with FB, resulting in its other holdings getting sold off disproportionately. If we know what overleveraged hedge funds are holding, then we can identify which tickers are likely to be disproportionately sold off tomorrow to meet their margin requirements.
Obviously, we can’t know for sure what levels of leverage hedge funds use, or which hedges they use, so there is no guarantee that margin calls will actually occur. That said, one of the big 5 tech stocks losing 20% overnights is unprecedented (unless you count Netflix), so its likely at least someone got caught with their pants down.
As it turns out, all hedge funds have to file 13F forms quarterly, which identify their holdings. Using a website, I identifed 26 hedge funds with 14% or greater exposure to Facebook – those most likely to be margin called tomorrow. The main caveat to this is the date of the data. About 1/3 of the filings are from 31DEC21 so are pretty recent. The others are from 30SEP21, which is a bit less reliable as they’ve had more opportunities to make adjustments.
From there, I dumped all their holdings into an Excel spreadsheet and identified: -Tickers with the highest percentage owned by these hedge funds -Tickers held in many funds (regardless of percentage)
After that, I screened out tickers with no options, an unsuitable share price, or unsuitable for other reasons (SPACs, etc). In order to find suitable tickers for puts, I tried to find tickers with a narrower bid/ask spread on options. Additionally, four of the five stocks I am listing as potential targets are already in a downtrend even with the recent rally. This means there is a good chance they pay off even if no margin calls occur.
My top picks for puts:
$CACC Not only does CACC have 4% of the stock held between two hedge funds, both of those hedge funds (Arrowhead Capital Management LLC and RV Capital GMPH) have very high exposure to FB (31.56% and 21.17%, respectively). Additionally, CACC is already in a strong downtrend, so there is a good chance these puts will pay off even if margin calls don’t happen.
$SEMR This ticker has the highest percentage of the stock held, 18.75% between two hedge funds. The bid/ask spreads on options are pretty large, so be careful with this one. The stock is in a moderate downtrend.
$WIX This ticker is held by two hedge funds for a total of 2.11% of the stock. THe stock is in a strong downtrend and options spreads are decent.
$ABCL This ticker is held by two hedge funds for a total of 1.51% of the stock. One of these, Belmont has a whopping 40.41% exposure to Facebook. Unfortunately, they only hold 0.05% of ABCL, but I still feel this is one of the most likely hedge funds to get margin called. Also, this stock is in a moderate downtrend.
$TDG TDG is held by 3 hedge funds for a total of 2.78% of the stock. The IV on its options is fairly low and the spreads are pretty narrow compared to a lot of the other tickers on here, which provides more upside potential. However, the stock’s fundamentals look a lot better than the other stocks listed her, so you could take greater losses
Positions: April CACC 500P April WIX 100P April SEMR 15P
Edit: I’m actually in April CACC 470p instead of 500p
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.