Does anyone here trade with pennies?

P

Port1385

Im not going to discuss any specific stocks because I know the rules on this board, but I have an academic question.

I have seen some stocks dip down to 1 penny on an announcement of bankruptcy and then move up 2-3 pennies some days later.

What is the possibility of trading such a stock? If I placed 5 grand for a stock at 1 penny and then sold it later at 2-3 pennies then I would have 10-15 grand.

Somehow I know this strategy doesnt work this way. Somehow Mr. Market is going to make this unplausible to where I will lose my cash.

So tell me your experience of trading these bankrupt penny stocks that fluctate 100-200% on average. Dangerous? Risky? Hell yeah, I think so.
 
Some thoughts come to mind right away.

1. Your broker may or may not offer you margin for the trade. Probably not a factor for what your asking.

2. transaction costs relative to the overall transaction are going to be high. This could actually be a winning strategy (I have given any thought to +/- expected return or edge)

you could back test this system and find out. Using limit orders and getting ECN rebates plus having low commissions may negate your transaction costs to zero or even less. for example IB unbundled rate is an effective rate of about 14 cents per 100 shares even when doing low volume.

Of course if your doing high volume and your getting an effective rate of zero commission or rebates the math changes quickly.

If there is a way to find the last 500+ stocks that went BK and back test the price action you would appear to have your answer once you factor your commissions in.
 
Quote from 1Reason:

Some thoughts come to mind right away.

1. Your broker may or may not offer you margin for the trade. Probably not a factor for what your asking.

2. transaction costs relative to the overall transaction are going to be high. This could actually be a winning strategy (I have given any thought to +/- expected return or edge)

you could back test this system and find out. Using limit orders and getting ECN rebates plus having low commissions may negate your transaction costs to zero or even less. for example IB unbundled rate is an effective rate of about 14 cents per 100 shares even when doing low volume.

Of course if your doing high volume and your getting an effective rate of zero commission or rebates the math changes quickly.

If there is a way to find the last 500+ stocks that went BK and back test the price action you would appear to have your answer once you factor your commissions in.
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The back testing will assume that once it prints at .01 you get the fill, but depending on how big the bid is, you only go to the back of the line and never get the fill.

If you do backtest, 1385, keep that in mind.
 
I dont consider this strategy as "trading", but a risky gamble by the way. I know there are some brokerages out there that charge a flat-rate (i.e. TDAmeritrade).
 
Quote from NY0BScalper:

The back testing will assume that once it prints at .01 you get the fill, but depending on how big the bid is, you only go to the back of the line and never get the fill.

If you do backtest, 1385, keep that in mind.
More...

NY0BScalper very good insight !!

totally agree with you that there is nothing that says your going to get filled. I would "guess" that a GTC order well ahead of the market actually being at one cent may get you in front of the line but that may not be a line you really want to be in front of.
 
Quote from Port1385:

I dont consider this strategy as "trading", but a risky gamble by the way. I know there are some brokerages out there that charge a flat-rate (i.e. TDAmeritrade).
More...

Sure, I would agree that a flat rate with enough shares could make the actual transaction costs reach a near zero.

At the same time is this something that you want to engage in with that much money? Even a highly net profitable system has to think about risk to ruin and money management??
 
Quote from Port1385:

Im not going to discuss any specific stocks because I know the rules on this board, but I have an academic question.

I have seen some stocks dip down to 1 penny on an announcement of bankruptcy and then move up 2-3 pennies some days later.

What is the possibility of trading such a stock? If I placed 5 grand for a stock at 1 penny and then sold it later at 2-3 pennies then I would have 10-15 grand.

Somehow I know this strategy doesnt work this way. Somehow Mr. Market is going to make this unplausible to where I will lose my cash.

So tell me your experience of trading these bankrupt penny stocks that fluctate 100-200% on average. Dangerous? Risky? Hell yeah, I think so.
More...

I haven't traded pennies, but for common sense purposes...what makes you think you will be able liquidate your position? Who is going to buy your shares in the event that they increase 100-200%in a day or two, and the company still might become bankrupt anyway. BTW commissions for these type of penny stocks are generally much higher, but they vary according to the broker.

If you want a good read on penny stocks, I would recommend "The Little Black Book of Microcap Investing" by Dan Holtzclaq. The author, however, deals with better established companies than are penny stocks (less than $5). I just don't see the logic of trading a stock that is just literally one penny.
 
Quote from Port1385:

Im not going to discuss any specific stocks because I know the rules on this board, but I have an academic question.

I have seen some stocks dip down to 1 penny on an announcement of bankruptcy and then move up 2-3 pennies some days later.

What is the possibility of trading such a stock? If I placed 5 grand for a stock at 1 penny and then sold it later at 2-3 pennies then I would have 10-15 grand.

Somehow I know this strategy doesnt work this way. Somehow Mr. Market is going to make this unplausible to where I will lose my cash.

So tell me your experience of trading these bankrupt penny stocks that fluctate 100-200% on average. Dangerous? Risky? Hell yeah, I think so.
More...
:eek: :eek: :eek: :eek:


When you buy the stock at 1 penny, it might not be a bottom. The stock could go down to 0.5 penny, or 0.01 penny, or worse, 0.00 penny. How much would your 5 grand be by then?
:eek:
 
Lets say the stock is trading at over 1 million in volume per day or more and that liquidating the position is not a problem.

Yes, this is a Timothy Sykes strategy, but does it work? It worked for Tim, but that was during a time when these penny stocks would go up a 1000% in short time....I dont consider Sykes an expert, but just someone who got lucky with this method.
 
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