IronNet (IRNT) May squeeze higher this week

Hey Guys,

I know I said I was done updating on $IRNT, but I checked OI, and I couldn’t help writing another update. Because we’ve got a 3 day weekend, I think we got the updated OI numbers a bit earlier than normal. I’ll just paste them below to get started, then throw out some observations. Again, data from here: https://www.cboe.com/delayed_quotes/irnt/quote_table. This is September expiries only. The only other expiration date with decent OI is October, and it’s a fraction of September and doesn’t change the analysis meaningfully.

I think it’s obvious looking at that table why the price went parabolic after hours. This was as of close on Friday, and 79% of the float was spoken for by delta-hedging options.

  • Total call open interest went from 37k to 44k. The biggest changes were the newly listed strikes at $14 and $16 with an increase of 2k each.
  • While those strikes tied up another 500k in shares, the other big change was the increase in delta at the $17.5 and $20 strikes which which doubled the shares represented from 400k to 800k.
  • Put OI increased by approximately 2k, but the dramatic price increase sent delta towards 0 and effectively reduced the shares represented by 25%.
  • The market opened up $31 through $37 strikes for trading tomorrow.

What does that all mean for tomorrow? Honest answer: I’m not sure and you shouldn’t base any decisions on my speculation below. I’m playing with house money and trying to turn a 10x into a 100x here. However, what I think it means:

  • This is actually, dare I say it, a $GME situation but on a far smaller scale… There just aren’t enough shares, and it’s going to be a technically driven frenzy. It could all happen tomorrow, or it could be a multi-day leg up like we saw in prior gamma squeezes.
  • The delta adjusted OI has already wrapped up almost the entire float, and if the afterhours settled price of ~$30 holds, delta for the $20s will jump to ~.8 and the increase in demand for shares for *only* that strike will be another 700k shares that are not currently available.
  • I don’t know where this could stop, but I’m hoping I can exit my calls at a share price of >$80.

So what are the risks? What could derail this money machine? I see a few key risks in order of likelihood:

  • IV for calls blows up over 300-400, creating lots of sellers looking for a quick flip. This would have been me last week, but with the latest update, I’m holding out for more than 2x from Friday.
  • The MM hedge by buying an enormous volume of September puts at the top of the option chain. As put IV blows up, selling them will become more attractive to our friends over at thetagang, and MM will be buying delta from them to offset the runaway train on the call side.
  • MMs could hedge by buying calls in the out months to offset the short dated calls. That would leave them exposed to theta and lots of the lesser Greeks guys like us don’t worry about, but that might be the lesser of two evils in this case. I believe that reduces their need for total shares since the long and short calls would offset each other, for the most part.
  • Some sort of action by an exchange or individual brokers to reduce volatility. This could be as simple as lots of market stops that interrupt momentum, or something more insidious like blowing up collateral requirements (although they’re already 100% on Schwab) or limiting buys. I think this is unlikely because there aren’t enough shares for this to make up a meaningful % of client assets like $GME and $AMC were.
  • Company action to increase float immediately. I think this is the least likely because any change would likely require a vote, a multiple day notification to shareholders, and/or a board of directors meeting. Only the board meeting can happen quickly. I’m not sure if there could be an announcement to direct list some of the lockup shares at board discretion. Any securities lawyers here who would know? That would be by far the most likely to stop this in its tracks, but I don’t think they can do that. If I’m wrong, please let me know!

Last thing I want to say. There WILL be an announcement of the listing of the PIPE soon. It could come as soon as tomorrow or as late as 30 days after ticker change. That will almost certainly not have immediate effect, so there is no reason to dump your shares the minute that filing comes out. There will likely be a temporary pullback when they announce listing of the PIPE shares, but I think it will be an overreaction because the share count will not be immediately changed. This should stay crazy through the 17th, and if call buying rolls through October could continue after that as well.

My position here remains small: 20 $20 September calls. I may add some shares depending how the premarket goes tomorrow.

As always, I’m open to any corrections or feedback that improves the overall understanding of the situation, and let me know if I’ve missed anything.

Good luck and take care of yourselves. This is super high risk, so don’t risk more than you can lose. It sure as hell ain’t financial advice.

This article was written by u/Undercover_in_SF