Whats the point of Penny stocks? (vs Options)

[butterfacetrader]

By and large the way to make money trading penny stocks is to buy the pump and short the dump. This requires you to wait for an active market in the shares of a particular stock to develop. You don't just throw darts and start scooping up shares and anything trading on the "cheap." These phases of the penny stock life cycle (the pump and the dump) are relatively easy to spot. The key fact that should be kept in mind when thinking about these stocks is that 99.999% of these companies are shitty, sketchy, shady etc. and that shares in these companies are not investment grade securities. These are nothing other than trading vehicles - but the fact that they trade in these identifiable patterns of rampant demand followed by panicked supply can make them far less risky than most would think. However, holding too much overnight has become riskier since the SEC has formed its microcap task force that has actively and aggressively suspended trade in the most blatant pumps. If you are long and the stock is suspended, your likely loss will almost assuredly be a minimum of 50%, and often 90-100%.

As you say that most penny stock traders are in it for a quick trade. Then why is there an advantage over options (stating time decay as a negative)? After all, buying options can make you just as much money because of its insane volatility and price moves. So, if you are not holding onto options for a long time, time decay isnt really a negative point. If your holding time for penny stocks is a few days, and your holding period of options is also a few days in analogy, options dont wither away that quickly with time value (especially a few months out not ones expiring this week).

Everybody needs to time markets in trading. Same thing with options. When the underlying moves 3%, you can see 40% or more moves with some options.

Unless its a niche thing that someone has a knack for picking winners with pennys for some reason and for the life of them can't figure out bigger cap names and thus cannot judge options moves well. Then by all means stick to penny stocks.

Personally, from a trading vehicle perspective, I think options give you as much bang for buck as penny stocks, and options markets are more legit market place too than OTC/pinksheet.

 

[xandman]

IN a nutshell, the 2 products are different paradigms and this thread should not continue.

 

[lotto]

Unless its a niche thing ...

I suspect I may have misunderstood your intentions in having started this discussion. I'll respectfully remove myself from further participation in your thread. Good luck to you!

 

[zdreg]

penny stocks + $1 to $2are long term term leaps at the money.

 

[zdreg]

penny stocks + $1 to $2are long term term leaps at the money.

penny stocks + stocks in the $1 to $2 range are...

 

[athlonmank8]

penny stocks, OTC, PINK is probably the last market not dominated by computers. Most transactions are still done by humans. It's something that should be respected imo.

 

[Wide Tailz]

These phases of the penny stock life cycle (the pump and the dump) are relatively easy to spot.

Never heard it said like that before but I agree. The pattern is actually right out of an Elliot Wave textbook.

PHOT just reappeared with an 60% markdown :eek:

On the reward side, ISR quadrupled in less than a month and some tiny stox can go up an order of magnitude.

Just like with long options, small position size is mandatory with anything this volatile.

Butter face trader reminds me of marketzurfer

 

[cornix]

IMO the only similarity between going long penny stocks and long delta single leg trades is potentially unlimited reward with relatively low initial risk.

 

[trader198]

trading penny is easier than options.

penny does not have time decay. timing accuray need be minutes/second.
choose to wait, 99% time you will ride out if you donot care about the time waited. for example, FNMA, maybe youbought around 3 or 2.5 in the first thrust drop, and see it droped to 1 bucks, you still have large chance to ride out at 5+, actually most folks did!

but for options, all depend on TIMING ACCURACY. if you bought options, the landscape change dramatically, you donot have second chance, options expired.
even just days or one day difference, your option expired,and youwill not net the benefits of riding out, you are forced to be declared losers.

that is why I trade penny. with some options. options need the right idea,plus the right timing, more hard to trade!

 

[trader198]

I agree.

if you buy AAPL/GOOG, hard to be doubled. but 0.3stock doubled tripled overnight.

of course, the odd is very low, more unpredictiable.

I once treat it like: buy the cheapest lottery, win the multi-millnion. think it as lottery.

often I monitor those pumps,then short. the odd is high.

IMO the only similarity between going long penny stocks and long delta single leg trades is potentially unlimited reward with relatively low initial risk.