Unloading shares idea

[garfangle]

Is this possible (or new) when you have a large stake of stock you wish to unload?

Let us say you have 1 million shares (you are a hedge fund) and the current bid price is 25.00. You know that it takes as little as 1000 shares to move its price. Instead of just unloading the shares at a constantly declining price (your selling will push the transaction price down), you instead offer to buy shares at much higher prices (at 26.00 and up). For instance offering to buy 1000s of shares at 26, 27, 28, 29 et al.

Of course your buy orders will be immediately filled, but what you hope is that OPS (other people's money) will rush in to help support the share price. Once it reaches an acceptable level, 33-35, you start selling into the previous buying. Hopefully you are able to sell more at the elevated price than it cost you to buy the higher priced shares.

Ex: bought 50K shares at average price of 31 = 50 x (31-25) = $300K; sold 50K shares at average price of 34 = 50 x (34-25) = $450K. Net, $150K.

As the price starts to fall, repeat the process until you unload your stake.

 

[BlueHorseshoe]

In fact Jesse Livermore describes just such an operation in the book "Reminiscences." Would suggest you haven't read the book??

Would think the operation you describe would work when, as Jesse describes, underlying conditions are in your favor. Otherwise it is likely to be a losing battle.

 

[garfangle]

Quote from BlueHorseshoe:

In fact Jesse Livermore describes just such an operation in the book "Reminiscences." Would suggest you haven't read the book??

Would think the operation you describe would work when, as Jesse describes, underlying conditions are in your favor. Otherwise it is likely to be a losing battle.

I would pick relatively high volume stocks as thinly traded stocks would not have positive underlying support (look for narrow spreads).

 

[garfangle]

To clarify, you can know whether the operation is working by examining the resulting spread. If it widens as you buy then you know that there are no follow-on buyers to support your move. However, if the spread stays narrow--it keeps up as the price rises from your buying--then you know that the stock has the support of OPM.

Example:

If the initial spread is 5c (25.00/25.05), then widens as you accumulate your position (25.00/25.50), then it is not working.

If the initial spread is 5c (25.00/25.05), then stays approximately the same as you accumulate your position (25.45/25.50), then it is working.