Can a HF manager do this?

[Pekelo]

The data doesn't lie:

"The study found that stocks that have the most hedge fund ownership (in the top 25 percent) see on average an abnormal return of 0.30 percent on the last day of the quarter, most of which reverts back the very next day of trading."

Read more at: https://phys.org/news/2012-12-hedge-funds-stock-prices.html#jCp

 

[cvds16]

you'd be taking huge risks ... this all might work untill a bigger whale comes along to drive it to the other side you intended ...
overall not too impressed by your articles ...

 

[ironchef]

Buying calls will push the price up, so the stock purchases will be at elevated levels. Selling calls will depress the stock price and cause a loss on the stock position, no? Likewise, proceeding to buy puts will cause more losses on stock position.

The success would depend on behaviour of other players. If you create a trend and others are willing to join the trend and take your position at current prices, then it works. If the other participants bet on mean reversion, then you're gutted because they won't purchase your calls and stock at those elevated levels and you have to sell at a loss.

Many hedge funds are followers of big hedge funds run by people like Ackman. So Pekelo's strategy could be real.

My question: Can a small mom and pop retail trader spot such moves and profit from it?

 

[Pekelo]

you'd be taking huge risks ...

Compared to what? Going long based on fundamentals? Your bigger whale argument just back ups my original post, that yes, a whale can manipulate the price.

The important thing is: be the biggest whale in the pond!

Since you aren't impressed with my links, here is another one describing my OP:

https://www.thebalance.com/how-to-legally-manipulate-stock-prices-3140856

"Once the price is sufficiently high, the cycle can begin again.
What has happened is the institutional investor through its purchasing power can drive prices down and then buy back into the stock at a low price."

 

[sle]

Compared to what? Going long based on fundamentals?

LOL. You are swinging from "risk-free" (btw, still waiting for you to respond regarding the calls) to really risky.

On topic, a few comments:
-- it's totally possible for a large transaction to move the price. However, the transactor is usually a receiver of the adverse effects not, the benefit. E.g. if you try to sell the amount of stock that's a meaningful fraction of ADV, you are going to move the price by X (so final price when you are fully done will be S_initial - X). Unfortunately, your average fill would be worse than the initial price by X/sqrt(2) usually (very rough, impact are so f*cking hard to predict).

-- Many large stock holders do move the price by simply talking about it. No need to transact.

The data doesn't lie:

"The study found that stocks that have the most hedge fund ownership (in the top 25 percent) see on average an abnormal return of 0.30 percent on the last day of the quarter, most of which reverts back the very next day of trading."

Read more at: https://phys.org/news/2012-12-hedge-funds-stock-prices.html#jCp

There are so many problems with that study, I don't even know where to begin.

 

[newwurldmn]

I did ... have you ?

You clearly didn't. When the fund buys the calls, the market maker who sold them will BUY stock to hedge his exposure, pushing the stock in the favor of the hedgefund.

 

[Martinghoul]

What if he buys the calls and puts at the same time? Let's say stock is at $40, he start buying 41 calls and 39 puts. It shouldn't effect the price because the pressure is both ways, right? Then he uses 50 mm to buy stocks. Once done, cashes out of calls and start to sell everything and more (meaning shorting), so the 50 mm buying power move suddenly turns into 150 mm selling power. That means the price should dip way below the initial $40, making the puts higher than their original price.

On the full short position he can sell more puts, making it a covered put play...etc.

If the stock is illiquid enough for 50mm to move its price sufficiently, how much liquidity do you think is there in options? Furthermore, how do you think these options are priced?

 

[Pekelo]

1. to really risky.
2.it's totally possible for a large transaction to move the price.
3.Many large stock holders do move the price by simply talking about it.
4. I don't even know where to begin.

1. How is it riskier than going long because you want to hold the stock for 1 year? At least he has the calls to provide buffer. So it is actually LESS risky than a buy and hold.
2. I know, so we agree. That is what Cramer said, back in the days 5 mm was enough.
3. This thread is stock manipulation by size, not by false rumours.
4. At the first paragraph would be fine. Or you can just check the stock prices (I did) if they moved up 8 days ago in the last 20 minutes. They did.

Look, your math is irrelevant. The manager doesn't have to commit all his 100 mm, he plays it as price moves. After a significant move and profits he switches sides and profits from the shorts.

A fresh example would be Bitcoin's price where the market is rather thin at the brokerages and now they even have options for it.

 

[Eurokopek]

Compared to what? Going long based on fundamentals? Your bigger whale argument just back ups my original post, that yes, a whale can manipulate the price.

The important thing is: be the biggest whale in the pond!

Speaking of whales, it didn't work out that great for the London Whale, did it?

What if he buys the calls and puts at the same time? Let's say stock is at $40, he start buying 41 calls and 39 puts. It shouldn't effect the price because the pressure is both ways, right? Then he uses 50 mm to buy stocks. Once done, cashes out of calls and start to sell everything and more (meaning shorting), so the 50 mm buying power move suddenly turns into 150 mm selling power. That means the price should dip way below the initial $40, making the puts higher than their original price.

On the full short position he can sell more puts, making it a covered put play...etc.

In your example price will be below the initial 40, but you'll have bought stocks at 40+x when pushing price up, and sold at 40-x. Cashing out calls will be tricky because in the selling process you depress prices, so the first options you sell will be ITM and the last ones OTM, and bid-asks will be waayyy wider. I'd much rather be on the opposide side of your trades selling to you above mid-point and then buying it back below mid-point (you and the option hedgers).

 

[Pekelo]

If the stock is illiquid enough for 50mm to move its price sufficiently, how much liquidity do you think is there in options? Furthermore, how do you think these options are priced?

What are you saying that there is no good candidate stock for this kind of play out of the 5K existing? I haven't looked but I am sure there are plenty... But if you want, you can forget about the option part and just play the long and short sided, the options are just extra creme on it...