Specialist Question

bcavender · May 10, 2003

My tech package popped up a hotel stock that might be good for a short (LHO:NYSE). Its long term financials were nothing to write home about....the recession is really killing this category's earnings....and this particular company missed guidance and retracted any guess for the rest of the year. The stock has moved up into what I would view as the overvalued range.

Friday around noon there were several trades that amounted to a number of major sells ~300Kshares total ... (though the price didn't hardly twitter when they hit ~10 cents.) At the end of the day, there were a dozen 100 to 400 lot shares that ticked the price up almost 50 cents.

Is there some kind of rational market explanation for this behaviour or is the Specialist just taking the price higher...because he can? (and if this is so....how far can he really push it?) Just looking to get a little inside scoop for the future.

I would appreciate comments on this from those that have some knowledge about Specialists and what they can/can't ... should/shouldn't be doing.

Tnx!

Bruce

qwiktrade · May 11, 2003

Quote from bcavender:

Friday around noon there were several trades that amounted to a number of major sells ~300Kshares total ... (though the price didn't hardly twitter when they hit ~10 cents.) At the end of the day, there were a dozen 100 to 400 lot shares that ticked the price up almost 50 cents.

one mans 300k sells are another mans 300k buys.. its not possible to know if the specialist participated in those "major" prints or not.. its a thin stock and 50 cents doesnt sound like something worth building a conspiracy theory around..

-qwik

bcavender · May 11, 2003

My intent is not to create a "conspiricy theory", but to learn better how the system works. In my opinion, to view all Specialist organizations as pearly-white with no self-interest would be naive...especially when times are getting harder for Wall Street.

Additionally your logic creates a non-sequitur.

First...I agree with you that it is a thinly traded stock....but that is exactly why it seems unlikely that someone dumping a couple hundred thousand shares statistically arrives at the time a hot buyer arrives for those same hundreds of thousand shares. I'm not saying it couldn't happen. Maybe one institution is transferring to another, which does happen, but I was under the impression these were done directly in private transactions.

If LHO was buzzing, I would probably agree with you. But it wasn't...far from it. In my humble opinion, it statistically seems most likely that the Specialist took the load into his inventory...because he knows he can move the price up and unload it over the coming week(s) at 50 cents to a buck more than he had to pay for it.

While I have no intent about raising a ruckus over something so small, I think there is a good learning point here for those of us who would really like to understand better how the system really does work...and how to be on the right side of the Specialist's process. I mean we know these guys have to make significant bucks to justify taking the risks of making a market.

If you have real knowledge about the inner workings I would honestly like to hear it...if not...well...insinuating that I am on the lunatic fringe for asking a (potentially sensitive) question...looks more like you possibly know more about the process than you are willing to share.

Good Trading!

tollywood · May 12, 2003

Specialist probably had a big seller and than called some the frequent players in that stock or any recent heavy buyers and asked them if they had an interest in buying any more yada, yada, yada. A big trade was blocked out

qwiktrade · May 12, 2003

Quote from bcavender:
to view all Specialist organizations as pearly-white with no self-interest would be naive...especially when times are getting harder for Wall Street.

of course Specialists have self interests

.. my point is simply that you cant know at any given time (with very few exceptions) what a specialists position is, if he has one.. most of them dont carry much inventory.. they arent long term traders.. and with a stock as thin as this the specialist probably has some junior clerk jerking around the bid/ask.. but even if you did determine that the specialist participated in a print it still does not tell you much because you dont know if he is opening a new position or taking off an old one..

Quote from bcavender:
Additionally your logic creates a non-sequitur.

First...I agree with you that it is a thinly traded stock....but that is exactly why it seems unlikely that someone dumping a couple hundred thousand shares statistically arrives at the time a hot buyer arrives for those same hundreds of thousand shares. I'm not saying it couldn't happen. Maybe one institution is transferring to another, which does happen, but I was under the impression these were done directly in private transactions.

If LHO was buzzing, I would probably agree with you. But it wasn't...far from it. In my humble opinion, it statistically seems most likely that the Specialist took the load into his inventory...because he knows he can move the price up and unload it over the coming week(s) at 50 cents to a buck more than he had to pay for it.

why do you assume that the buyer and seller arrived at the same time? probably someone wanted to acquire 300k or so shares and didnt want to drive the price up going after it at the market.. so they gave the specialist an order with a price limit and no time limit.. then a seller showed up and perhaps part or all of that order is now filled..

Quote from bcavender:
While I have no intent about raising a ruckus over something so small, I think there is a good learning point here for those of us who would really like to understand better how the system really does work...and how to be on the right side of the Specialist's process. I mean we know these guys have to make significant bucks to justify taking the risks of making a market.

they do make serious bucks, but not by exposing themselves with huge positions for weeks on thin stocks.. mostly they are there for the spread.. if someone had come in with a 300k market sell order and the specialist had to take the other side of that you can bet that he would have given himself a much better discount than 10 cents..

Quote from bcavender:
If you have real knowledge about the inner workings I would honestly like to hear it...if not...well...insinuating that I am on the lunatic fringe for asking a (potentially sensitive) question...looks more like you possibly know more about the process than you are willing to share.

dude, i didnt say you were on the lunatic fringe.. but just because youre paranoid doesnt mean they arent out to get you either.. i think there is a tendency to make things more complicated than they really are.. i traded listed stocks quite profitably my first year as a trader (before decimals).. i remember one time calling up my broker and raising all kinds of hell because i thought the specialist had traded through my order when my order had actually been sent to a different exchange.. i just didnt understand the process and immediately assumed i was getting the shaft.. it might be worth it for you to go to your local barnes and noble and pick up a book that explains the rules/procedures of the different exchanges.. good luck

-qwik

ChaosNSX · May 12, 2003

Quote from qwiktrade:

dude, i didnt say you were on the lunatic fringe.. but just because youre paranoid doesnt mean they arent out to get you either..
-qwik

Dude, you sound like harrytrader in another thread, you guys related?:eek:

qwiktrade · May 12, 2003

none

-qwik

bcavender · May 12, 2003

Quik,
Thanks for the good response. Your scenario is one that I had not considered. ...and yes I am a little paranoid about my money. Like Andy Grove...a little paranoia goes a long way. LOL

I'll do a little searching on finding a practical exchange ops book. That would be a good way to come up to speed on organization/duties.

Thank you for the help and insight!!

Bruce

Hitnruntrader · May 12, 2003

Quote from bcavender:

My tech package popped up a hotel stock that might be good for a short (LHO:NYSE). Its long term financials were nothing to write home about....the recession is really killing this category's earnings....and this particular company missed guidance and retracted any guess for the rest of the year. The stock has moved up into what I would view as the overvalued range.

Friday around noon there were several trades that amounted to a number of major sells ~300Kshares total ... (though the price didn't hardly twitter when they hit ~10 cents.) At the end of the day, there were a dozen 100 to 400 lot shares that ticked the price up almost 50 cents.

Is there some kind of rational market explanation for this behaviour or is the Specialist just taking the price higher...because he can? (and if this is so....how far can he really push it?) Just looking to get a little inside scoop for the future.

I would appreciate comments on this from those that have some knowledge about Specialists and what they can/can't ... should/shouldn't be doing.

Tnx!

Bruce

My guess is simple supply and demand! There was a buyer and seller at the same time who wanted that type of size.

I agree that stocks are weird but i tell ya i have seen it many many times where stocks do strange things.

Example: how many times have you seen a stock drop on air and then go back to the same price it started from but on the way up do tons of volume.

Example abc is at 45.00

It goes down to 43.50 and on the way down it does about 40,000 shares taking it to that level. Over the course of the next 3 hours abc works its way back to 45.00 only this time to take it back to that level it does 500,000

I have seen this many times. Just crack that bid or nail that ask and make some $$$$$

Good luck