🔔 Why asymmetry matters

Today's Opening Belle is brought to you by our partners, Equos and Utrust.

Looking for a crypto exchange? Give Equos a try (they've also just released an exchange token, similar to BNB and FTT 👇

 Driven by the launch of $EQO, @EQUOS_IO's first exchange token, and a significant increase in major institutional clients, EQUOS has recorded daily volumes in excess of US$100 million and total volume of over US$1 billion in April to date.

Learn more: https://t.co/gENcYi6M89— Diginex (@DiginexGlobal) April 19, 2021 

Want to incorporate crypto payments into your business? Definitely use Utrust

utrust.com/business

 History in the making! For the first time merchants will get additional profit for their payments instead of losing on fees. Reverse Staking & Compound Yield are coming soon! 🚀 Read more: https://t.co/enTNxssX6Q pic.twitter.com/LgeVaZc7JU— Utrust (@UTRUST) April 14, 2021 

We only work with partners we know, trust and have a strong product.

No exceptions.

One of the most important things to consider when making any trading/investing decision is the risk/reward profile...

Ideally we want to see an asymmetric profile: an imbalance that skews towards greater upside returns with lower downside risk...

You might be familiar with this concept already...

Let's take a look at a real-time example 👇

Remember ROOT?

Citron's Andrew Left was all over it on the 26th March, we covered it here 👇

It's not gone well since... Maybe he should have stuck to short-selling?

But let's not dismiss the idea too hastily...

One of the reasons Citron liked this stock was the high short interest...

'Probably one of the most heavily shorted stocks on the Nasdaq with a valuation above $1bn'

...the real time short interest data on ROOT from short interest analytics firm S3 Partners last week shows that ROOT’s short interest has further increased to 12.2 million shares short with short interest as a % of float now between 44% and 79%.

ROOT is now the most highly shorted stock with a market cap above $1 billion in North America.

That short positioning is still just over 40%...

The IPO lockup period expired on the 26th April (opening the door for early investors and insiders to sell their shares...)

And there's the small matter of an ongoing lawsuit claiming that the company misled investors (based on a BofA report)

On March 9, 2021, Bank of America Securities analyst Joshua Shanker initiated coverage of Root with an "Underperform" rating on the premise that the Company is unlikely to be cash flow positive until 2027, finding that Root "will require not insignificant cash infusions from the capital markets to bridge its cash flow needs.

Root's share price barely fell on the BofA report, although it has steadily ticked lower since March 31st when the lawsuit was filed...

Lawsuits against disruptive tech companies are nothing new: it's easy for investors to misunderstand untested business models, and easy for companies to overstate their own potential.

A lawsuit is not the end for a business...

Just ask Tesla (party to over 1,000 lawsuits since 2008)

Everything that Citron laid out in their report is still accurate...

Even the bears will admit, ROOT has great management that knows insurance and technology. However, ROOT has done a poor job of telling their story to Wall Street.

There isn’t even an investor presentation on their website.

Their earnings call next week (5th May) gives them another chance to tell that story...

Remember, I'm not trying to sell you on Root.

I could fit my entire insurance industry knowledge on a post-it note.

What I do see is a great example of asymmetry...

Let's take a look at the analyst expectations on Yahoo Finance

How do those expectations look on the chart?

Beautiful Asymmetry 🤩

Citron said this when ROOT was trading at ~$14:

We believe ROOT is a misunderstood short. This is a disruptive tech company and investors have an opportunity to buy the stock at bargain prices vs. what the smartest tech investors in the world paid just five months ago.

It's now trading $10.85: better value or cheap for a reason?

The downside looks (and sounds) limited, who's really going to sell/short at these prices?

However, a catalyst is required to push the price higher...

A short squeeze perhaps...?

Or maybe ROOT learn to tell their story in language Wall Street can understand...

Whatever happens, there is definite asymmetry to being long rather than short...

The next thing to consider is the opportunity cost of sitting in the trade while waiting for that catalyst to materialise.

We'll dive into that tomorrow...