For those of you who may be unaware of recent trends, 2020 is now being widely referred to as, "The Year of the SPACs", and for good reason. Year-to-date, more than 150 SPACs have IPO'd, raising a total of $57.5bn - this represents 90% of total U.S. IPOs filed and 82% of total U.S IPO gross proceeds in 2020; overall, a +420% increase in funds raised by SPACs from the second most successful year.
For the purpose of brevity, I won't describe in great detail what a SPAC is, but if you have any questions or want to learn more, I highly suggest you read through Harvard Law School's Introduction to SPACs.
I will, however, briefly describe how SPACs present institutions with attractive arbitrage opportunities and, now, hopefully, you as well. At IPO, SPACs issue units (in the case of Duddell Street Acquisition (DSACU)) which are comprised of one share of common stock and one warrant that can be executed at a later date. The units typically split 45 days after IPO at which point, the sum of its parts (common stock and a fraction of a warrant, typically ½ warrant) can be traded independently of one another. Whole warrants typically have an exercise price of $11.50 and can be executed for one share of common stock (at that price) after an effective merger is complete. The simplest way of thinking about a warrant is a "free" call option that has a strike price of $11.50 and is issued in combination with a SPAC unit. In other words, when you buy a SPAC unit at IPO for $10, you are getting 1 common stock at $10 and a "call option" for $0 at a strike price of $11.50 (that can be exercised after a merger is complete at any point within, typically, a 4-year period). Now, despite SPAC funds being held in an interest gaining trust (typically, short-term government bonds with ~2-3% interest), the shares will trade over/under $10 typically until the
