I must be doing something right …

Here are my monthly profits along with a 6 month forward moving average of each (the average is for the current month and the next five months). My records for 2007 and 2008 are not nearly as reliable so are not included.

Two of my three most profitable months since 2009 have been this month and last month. Four of my six most profitable months were the four most recent months.

Unfortunately I have not been able to upload my recent trades from Interactive Brokers to Profit.ly, so my profits at IB do not show up on Profit.ly (but do show up in the chart below).

$ Profits

These figures do not include data fees or borrow costs.

Disclaimer:  I have no position in any stock mentioned and no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

A note on short selling fees at Interactive Brokers

I have recently noticed that on some pump and dumps Interactive Brokers’ short stock borrow costs have gotten rather high. On ECAU, SWVI, and GNIN the borrow costs have been at times about 50% APR. Even worse, Interactive Brokers does not charge based on the total value of the position, but based on the value of the position after rounding up the share price to the nearest dollar, so a 20,000 share short of a stock at $0.20 will incur borrow fees not based on the $4,000 position size but based on the amount of $20,000 (20,000 x $1). Likewise, for a stock priced at $1.06, the price would be rounded up to $2.00 for calculating position size for the purpose of interest. So to calculate your borrow cost, you need to take the APR, multiply by the number of shares and the stock price rounded up to the next dollar. That is the annual borrow cost; divide by 360 to get the daily borrow cost (which is also charged on weekends).

So for a 10,000 share short position in SWVI, with a 50% APR, the daily borrow cost is 10,000 x 0.50 x $1.00 / 360 = $13.89. For a position with a value of about $2000 that is a pretty hefty fee to pay (and the equivalent of an APR over 250%). It is still worth it for a couple days or weeks if it drops another 50% or so, but that fee is unpleasantly high. See Interactive Broker’s explanation for this policy.

 

Disclaimer: I am short SWVI; have no position in any other stock mentioned; my positions may change at any time after this is posted. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Are VIX Futures ETPs Effective Hedges? No.

This purpose of this post is not to bash certain supposed trading gurus who were so incredibly stupid as to lose money owning TVIX when it was trading at a nearly 100% premium to its NAV (for the pedants, yes I know that ETNs don’t technically have NAVs — they have indicative values, but those function the same way as NAV — it is the value of the underlying asset or derivative contract). Learn more about TVIX at the VelocityShares website. (Speaking of TVIX, I would be chary of buying any product that has scores of references in its prospectus to when (not if) its value reaches $0.)

No, this post is just to let people know that using VIX futures and ETNs based on it for hedging a long stock portfolio is not the best idea. From a paper just posted to SSRN a few days ago (emphasis mine):

Exchange-traded products (ETPs) linked to futures contracts on the CBOE S&P 500 Volatility Index (VIX) have grown in volume and assets under management in recent years, in part because of their perceived potential to hedge against stock market losses.

In this paper we study whether VIX-related ETPs can effectively hedge a portfolio of stocks. We find that while the VIX increases when large stock market losses occur, ETPs which track short term VIX futures indices are not effective hedges for stock portfolios because of the negative roll yield accumulated by such futures-based ETPs. ETPs which track medium term VIX futures indices suffer less from negative roll yield and thus appear somewhat better hedges for stock portfolios. Our findings cast doubt on the potential diversification benefit from holding ETPs linked to VIX futures contracts.

The paper is Are VIX Futures ETPs Effective Hedges? by Deng, McCann, and Wang. See the full abstract and download the paper at SSRN.

Disclaimer: No relationship with any parties named above and no positions in any stocks or funds mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well..

The websites of stock promoter Sherwood Ventures LLC (f/k/a Blue Wave Advisors LLC)

One well-known stock promoter is Sherwood Ventures LLC, formerly known as, or whose websites were formerly owned by, Blue Wave Advisors, LLC (see their website). It is a good stock promoter to analyze because unlike some other promoters, they do not change their address and legal entity every year or two. This makes finding their various websites rather easy. The rest of this post below was written before Bluewave changed to Sherwood. To my knowledge all the websites remain under common ownership.

One of the more common mistakes that new penny stock traders make is that they look on websites like StockPromoters.com or HotStocked.com or StockReads.com and then see that (for example) 20 different newsletters are promoting one stock. What matters is not the number of newsletters but how many separate promoters pump the stock and what the reach of those promoters is. (Of course, the most common mistake new penny stock traders make is believing that buying promoted penny stocks is a good idea — most of the time that leads to losses; there is a reason why I started trading penny stocks solely by short selling them and even now I sell short much more often than I buy.)

Following are excerpts from emails I received today promoting PBIO, first from BeaconEquity.com:

BeaconEquity.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From StockPreacher.com:

StockPreacher.com is a wholly-owned subsidiary of BlueWave Advisor,BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From MicroStockProfit.com:

Microstockprofit.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services

From TheLightningPicks.com:

TheLightningPicks.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From TheHotPennyStocks.com:

TheHotPennyStocks.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From StockRoach.com:

BlueWave Advisors, LLC owns seventy five percent of the outstanding membership interests of StockHideout LLC. Stock_Analyzer owns twenty five percent of the outstanding membership interests of StockHideout, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From StockHideout.com:

BlueWave Advisors, LLC owns seventy five percent of the outstanding membership interests of StockHideout LLC. Stock_Analyzer owns twenty five percent of the outstanding membership interests of StockHideout, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From InvestorSoup.com (on 3/15 — I did not see an email from them today promoting PBIO):

Investorsoup.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.Currently BlueWave Advisors has been compensated sixty thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for BARZ advertising and promotion.BlueWave Advisors has been compensated 750,000 Restricted Rule 144 shares from the company for PSID advertising and promotion. BlueWave Advisors has been compensated seventy five thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for VGTL advertising and promotion

From PennyStockCraze.com (on 3/15 — I did not see an email from them today promoting PBIO):

PennyStockCraze.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.Currently BlueWave Advisors has been compensated sixty thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for BARZ advertising and promotion.BlueWave Advisors has been compensated 750,000 Restricted Rule 144 shares from the company for PSID advertising and promotion. BlueWave Advisors has been compensated seventy five thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for VGTL advertising and promotion.

[Edit 4/5/2012 to add the Tech24.org website]

I just learned about another pump website owned by Blue Wave Advisors, LLC —   Tech24.org. See: http://www.tech24.org/disclaimer:

Tech24.org is a wholly-owned by BlueWave Advisors, LLC. BlueWave Advisors, LLC is a financial public relations company that is compensated by many of the companies profiled.

One interesting fact about Blue Wave Advisors, LLC is that the company owns and runs two paid subscription stock alerts services. Those services are TopStockPicks.com / SuperNovaAlerts and JasonBondPicks.

From TopStockPicks.com disclaimer:

TopStockPicks.com is a wholly-owned by BlueWave Advisors, LLC. While BlueWave Advisors, LLC is a compensated investor relations firm, TopStockPicks.com and its newsletter are unbiased.

From JasonBondPicks.com disclaimer:

JasonBondPicks.com is wholly-owned by BlueWave Advisors, LLC (BWA). BWA is a compensated investor relations firm. JasonBondPicks.com (JBP) offers a monthly, paid membership stock alert newsletter. These stock picks are one hundred percent unbiased and JBP is never compensated for them. JBP also runs a free newsletter, which will occasionally send out stock ideas which BWA may receive compensation for.

From a business perspective, it is a great idea for a stock promoter to have separate paid alerts services so that they can earn money in multiple ways (and they have a captive audience of people on their free stock promotion email lists to upsell their paid services to). That being said, I do not like the situation from the perspective of the guru, because the relationship, while it certainly leads to increased sales, can taint the guru, especially in a situation like with JasonBondPicks.com where Blue Wave sends paid stock promotions to people on his free email list.

[Edit 2013-6-10]: Both JasonBondPicks.com and TopStockPicks.com now disclose ownership by “Patriot Publishing.” Perhaps the negative publicity of their ownership by a stock promotion company led to the spinoff. In all likelihood the owners of Patriot Publishing likely remain the same people who own and control Sherwood Ventures.

Disclaimer: No positions in any stocks mentioned. I have multiple business relationships with Timothy Sykes, co-owner of Profit.ly, which currently provides the platform for JasonBondPicks.com and TopStockPicks.com [update 3/20/2012 – Apparently those newsletters are no longer on Profit.ly or at least are not being sold through Profit.ly — see http://profit.ly/sales/gurus] — please see my terms of use for details. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

On Timothy Sykes becoming a stock promoter and promoting IRYS

In case you missed it, Timothy Sykes promoted IRYS this morning in an email to those who signed up to his free promotional email list for the re-launch of his longer-term penny stock trading newsletter. See the email online here. The disclaimer from his email is as follows (bold added by me):

DISCLAIMER: This newsletter is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Millionaire Media, LLC and Market Authority, LLC, have been compensated one hundred thousand dollars for the distribution of this particular email. Any future email regarding a specific company will be the result of an advertising and promotional campaign for which Millionaire Media, LLC and Market Authority receives compensation. This compensation constitutes a conflict of interest, as to our ability to remain objective in our communication regarding the profiled company. Because of this conflict, individuals are strongly encouraged to not use this newsletter as the basis for any investment decision. Millionaire Media and Market Authority do not hold positions in the covered company.

While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a real licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.Market Authority is also not a registered investment adviser. We do not and will not provide personalized investment advice. Market Authority publishes opinionated information about finance and trading that we believe our subscribers may be interested in. Click here to view our entire dilsclaimer.

Past performance is not indicative of future results.

[Update 3/5/2011 – See Tim’s blog post about this]

I have to acknowledge my failure in this situation. Tim asked my opinion on him doing an ‘ethical’ stock promotion some time ago. I was vehemently against the idea of him doing that — I felt that he would take a huge hit to his reputation even in a best-case scenario. If the pump were to bomb and his subscribers lost money the hit to his reputation would be huge, I thought. I feel now that I failed and I should have been more against it — I should have said that I would cease working with/for Tim if he did ever get paid to promote a stock.

The fact of the matter is that it is hard if not impossible to have a successful stock promotion without blatantly lying. The whole point of stock promotion is to get suckers to invest in worthless companies so that insiders or other large shareholders can sell their shares. If mostly day-traders buy a promoted stock, then they will buy from the promoters at first but then their sells later in the day will crowd out the sells of the promoters. Longer-term investors will buy and hold for days or weeks or months or years and thus not compete with the promoters to sell stock.

By promoting a stock while not actually hyping it up, the promoter will get fewer buyers (mostly day-traders) and the promotion will do poorly. I believe we are already seeing this in IRYS, where there was a bunch of buying in the first 15 minutes after the open, sending it up from its .755 open to a brief high of .83, before it started fading. The current price action does not bode well for the stock.

If you look at Tim’s email you will see that he didn’t put absurd price targets in it nor did he hype up the company. That makes his stock promotion less unethical than others. It still leaves a sour taste in my mouth and I know more than a few of his subscribers are unhappy with Tim for engaging in any stock promotion.

As to what I did with IRYS, I bought 21,000 shares at the open and sold almost all those shares in the first 15 minutes (I sold my last shares at $0.801 at 10:54 AM EST) . I have no position remaining and I netted just over $870 in profits. I did not mention my buys in Tim’s chat but said I would not discuss my trading of the stock; as with all pumps, I urged everyone to be careful and not to chase the stock. I did alert when I had sold most of my shares and when I sold the last of my shares so that people in chat would think twice before buying it at the elevated prices it was at (over 80 cents). I no longer have a position in IRYS and I will not buy it again (I may short it in the future). I always strive to maintain the highest levels of ethical behavior and I believe that I acted in such a way as to minimize not just any conflict of interest but even the appearance thereof. That being said, I am a trader first and a blogger and chat moderator second — I was not going to avoid trading IRYS just because Tim Sykes was the one pumping it.

Disclaimer: No positions in any stocks mentioned. I have multiple business relationships with Timothy Sykes — please see my terms of use for details. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

We are all in this together … or not

Whenever you hear that phrase, “We’re all in this together,” be very, very cautious. That is what scammers will say to convince you to do stupid things with your money (like buying pumped stocks) and what both hucksters and even non-fraudulent trading gurus will say to try to get their hands on your money.

The simple truth of the matter is that everyone has different goals and priorities. The most important thing you can do is to make sure you are aware of how the priorities of those you deal with and listen to differ from your own. A stock promoter’s goal is simply to get you to buy stock — damn you and your kid’s college fund.  A trading guru who sells his services with an alert service or trading chatroom benefits the longer you subscribe. His financial interest is best served by selling something that you will continue to want or need for years and years. The guru’s monetary motivation will — ceteris paribus of course — cause him to charge as much as he can for as little as he can. He will sell you hard to get you to pay him more money.

Even saying that all traders care about is profits is wrong. Especially in the penny stock world there are many of us who are motivated by other things besides profits (of course we are all motivated to a large extent by profits). I remember getting a bunch of flak from commenters on this blog when I accused a certain pumper of violating securities laws (six months later the SEC sued him). People attacked me for potentially destroying profitable trading opportunities. But I along with most other bloggers don’t just do this for money.

At the end of the day, each of us is motivated by different things, some of which are obvious, some of which are not. Money is the most obvious, but most of have emotional motivations — we genuinely want to help those we come across. Some of us have other motives that drive us, more powerful motives. When the time comes, my motivations will be made clear. In the meantime, let us embrace the motto “All for one, one for all, and every man for himself!”

 

Disclaimer: No positions in any stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well..

2011 Super-mega-ultra pump and dump recap

I haven’t done any posts like this so far this year so I am going pretty far back. Please remind me in the comments of any big pumps I forget  and I’ll add them. See my last pump and dump recap from January to see some mailer pumps from the very beginning of the year.

Mailer Pumps

SPLM – $400k snail mail pump. See an image of the disclaimer here. The last part of the disclaimer is the most interesting: “”In order to enhance public awareness of Sentry Petroleum Ltd., and other companies profiled by WER [World Energy Report] through the distribution of this report, ECA [Energy Capital Advisors] paid WER four hundred thousand dollars. These funds were applied towards costs associated with creating, printing, and distributing this report. ECA will pay no additional sums. WER, ECA, and those associated with them may own shares and effect transactions in securities of Sentry Petroleum Ltd and other companies mentioned in this publication the sale of which could adversely affect the share price. The owner of ECA owns approximately zero point two six (0.36) percent of the outstanding shares Sentry Petroleum Ltd [sic] and will not sell any of those shares within ninety days of the date of this mailing.” [emphasis mine]

 

 

KNKT – $800k pump from Capital Financial Media (CFM). See post here (unfortunately the pump website is offline).

UTOG – $2.5m mailer pump. Trading was suspended by the SEC for two weeks at the beginning of June (a rare case where the SEC suspended trading in an active pump & dump). See website www.AmericanEnergyReport.com Disclaimer: “AmericanEnergyReport.com has been retained by an unrelated third party to perform promotional and advertising services intended to increase investor awareness of UnionTown Energy Inc. (UTOG). To date, AmericanEnergyReport.com has received two million five hundred thousand US dollars from an unrelated third party for performing these services. The services performed have included profiling the company on the AmericanEnergyReport.com website and issuing opinions concerning UTOG in newsletters and press releases. AmericanEnergyReport.com has received this amount as a production budget for advertising efforts and will retain amounts over and above the cost of production, copywriting services, mailing and other distribution expenses as a fee for our services. In addition AmericanEnergyReport.com expects to receive an additional two million dollars cash in future compensation for the continuation of the marketing program for an additional 3 months and to cover marketing vendors to pay for the costs of creating and distributing this report online in an effort to build market awareness, and AmericanEnergyReport.com will disclose any future compensation.”

 

LEXG – The greatest pump I have ever seen and probably one of the best ever. Note not just the price movement but the incredible volume — the value of stock traded on its last big up day exceeded $100m. This had a $3.29m budget disclaimed on these two websites: http://www.smauthority.com/video and http://www.thestockdetective.com/lexg/

Disclaimer: “Lithium Exploration Group, (LEXG), the company featured in this issue, appears as paid advertising, paid by Gekko Industries to provide public awareness for LEXG. … CM [Circuit Media] has received and managed a total production budget of $3,296,800 for this advertising effort and will retain any amounts over and above the cost of production, copywriting services, mailing and other distribution expenses, as a fee for its services. TSD [TheStockDetective] is paid $50,000 as an editorial fee from CM and also expects to receive new subscribers as a result of this advertising effort.”

Please note that unlike most of the stock charts on this page, the chart below is not log scale, to make seeing the price action during the pumps easier to see.

JAMN – An incredibly successful pump, the second most successful pump I have ever seen, after LEXG. This was pumped by HackTheStockMarket.com; see the pump page here (or here or here). The name and address information required by the CAN-SPAM law from this pumper changed multiple times, which leads me to believe it was all fake. HackTheStockMarket disclosed only $15,500 in payment for the promotion. The disclaimer was an image that is shown below.

Please note that unlike most of the stock charts on this page, the chart below is not log scale, to make seeing the price action during the pumps easier to see.

AVVC – $1.8m budget disclosed on this mailer pump. Lots of speculators / traders / idiots lost big going long on this stock — it was the first big pump failure following a string of very successful pumps early this year. Disclaimer: “CFM has received and managed a total production budget of $1,800,000 for this online advertising effort and will retain any amounts over and above the cost of production, copywriting services, mailing and other distribution expenses, as a fee for its services. Breakaway Stocks is paid $5,000 as an editorial fee from CFM and also expects to receive new subscriber revenue as a result of this advertising effort.” from this website.

LOGL – $1.275m mailer pump — see the SI pump mailer message board.

TBBC –  This was a large pump from multiple sources with over $800,000 in compensation. Following are those that I can find:

“Charles Payne’s Common Sense Newsletter received forty thousand dollars, as an editorial fee, from Creative Direct Marketing Group, Inc., which it received from the featured Company. This company was chosen to be profiled after Charles Payne’s Common Sense Newsletter completed due diligence on the company. Charles Payne’s Common Sense Newsletter expects to generate revenue and new newsletter subscribers and valuable exposure, the amount of which is unknown at this time, resulting from the distribution of this report. Creative Direct Marketing Group, Inc. received fifteen thousand, eight hundred dollars from the Company, for the costs of creating and distributing this report in an effort to build investor awareness.” from this pump website

“StockMarketLife.com has been retained by an unrelated third party whose principal is a shareholder of the featured company, The Brainy Brands Company Inc. (TBBC), to perform promotional and advertising services intended to increase investor awareness of TBBC. StockMarketLife.com expects to receive up to six hundred thousand US dollars from the unrelated third party for performing these services. The services performed have included profiling the company on the StockMarketLife.com website and issuing opinions, including Charles Payne’s report, concerning TBBC on this website, online marketing, in newsletters and press releases. StockMarketLife.com has received this amount as a production budget for advertising efforts and will retain amounts over and above the cost of the production, copywriting services, mailing, media buying and other online distribution expenses as a fee for our services.” This disclaimer was also in emails from GreenGainers.com and PowerPennyStocks.com, which all appear to be run by the same person/company.

“PennyStockRewards.com is a wholly owned subsidiary of Asset Development Strategies Corp.  Currently Asset Development Strategies Corp. has been compensated $50000.00 for this advertising program from a non-affiliated third party shareholder who will be selling stock in TBBC.”

WallStreetPennyStockAdvisors.com received $200,000

 

RYUN – I am not sure of the details of this pump.

AAGC – $1.26m budget disclosed. Absolute destruction. Michael Williams Market Movers was paid $20,000 by Citiglory Consultants Ltd and Citiglory paid $1,265,178 for the cost of the promotion — due to website troubles I lost my copy of the disclaimer (the bastards had it as an image that I had saved). See the online version of the mailer (no longer working).

TKDN – $1.4m budget disclosed. Absolute destruction. Disclaimer: “CFM has received and managed a total production budget of $1,400,000 for this online advertising effort and will retain any amounts over and above the cost of production, copywriting services, mailing and other distribution expenses, as a fee for its services. M3 Profit Accelerator is paid $3,000 as an editorial fee from CFM and also expects to receive new subscriber revenue as a result of this advertising effort.” (CFM = Capital Financial Media). See the online version of the mailer at SmallCapFortunes

TKDN is an even more impressive dump when considered over nine months (hardly the long-term!) it dropped from a high of about $1.34 to a low of $0.006 — a drop of 99.55%.

Note: on 12/19/2011 the pumps in this post run by the big three email pumpers were removed to a GoodeTrades Premium post and more info on those pumps was added.

Disclaimer: No positions. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

Some facts about how stock promoters Golden Dragon Media & Pudong LLC work

All of the following is quoted from documents filed in this case stemming from the alleged misappropriation of some stock promoters’ email lists: OTC Solutions LLC , Golden Dragon Media Inc, and Pudong LLC v. John Does 1-50 (link to Justia summary).

First, check out the original complaint from June 29th, 2010.

Each Plaintiff has numerous lists (“Subscriber Lists”), comprising anywhere from 25,000 to 65,000 subscribers. Each list has grown as a result of significant marketing efforts by Plaintiffs, which includes Internet-based advertising costs in excess of $30,000 per day. Each Plaintiff has numerous lists (“Subscriber Lists”), comprisinganywhere from 25,000 to 65,000 subscribers. Each list has grown as a result ofsignificant marketing efforts by Plaintiffs, which includes Internet-based advertising costs in excess of $30,000 per day.
That is a pretty impressive list size, and by my count the pumpers named above have 20 different websites between them that are currently functioning (I am sure they have others that I am not aware of). Advertising costs of $30,000 per day translates to $10.95 million per year. That number seems high relative to the amount of compensation disclosed in these pumpers’ emails.

I will blog more on this lawsuit. Please leave a comment if you have any clue what happened to it though. The most recent update in PACER was from last December and nothing was filed to close the case in any way. Please check out most of the important filings on this case, which have been uploaded to Scribd.


Boxing your shorts: Why I could short TNGS when almost no one else could

One of the problems with a lot of pump and dumps is that there are often not any shares to short when the stock is about to fall. However, there are often shares available to short days before, when the pump is just starting. For example, there were at least 5,000 shares per day of TNGS available to short at Interactive Brokers for many days prior to its big drop day. However, from January 19th (the day before its big drop) to January 21st (the 2nd big drop day) there were no shares available to short at Interactive Brokers. Below is a chart from Interactive brokers showing the share availability to short of TNGS.

So what can a short seller do? The simple answer is to box the shares (this is also referred to as simply boxing). Boxing originated as a tax technique designed to delay the realization of capital gains while eliminating the risk of holding a stock. So for example an investor who was long 1,000 shares of AAPL since 1990 would then go short against the box, selling short an equal number of shares either in the same account (some brokers let you do this) or in another account, if he believed the stock was temporarily overvalued. This eliminated the risk of holding AAPL stock and did not require realizing a huge taxable capital gain. This tax loophole was closed in 1997. Now the only reason to box shares is to lock up short shares.

What I do on many pumps (the ones I know I will want to short sell) is I short shares at Interactive Brokers while going long an equal number of shares at SpeedTrader. Sometimes I will already be long the stock as I do sometimes try to make money by buying pumps (but shorting is much easier). Other times I will scalp to open the boxed position (for example I might scalp short and then buy long in my other account to box, rather than covering). By boxing the shares I accomplish two things: (1) I can now short whenever I want by selling my long shares, even long after no new shares are available to short, and (2) I can get better fills when I do decide to short an OTC stock because Speedtrader has more direct-routing options than does IB.

So how did I implement this for pump TNGS? I shorted 3000 shares at Interactive Brokers at an average price of $2.51 on 1/14 (that I later covered at $2.096 on 1/20 and 1/21). The same day, I bought 3000 shares in my Speedtrader account (I think I actually ended up buying for poor scalps multiple times, which explains why my average buy price is so much higher than my average short, and why Profit.ly has the position size at 4900 shares).

To get net short on 1/19 when TNGS was looking weak and I thought it might drop, I sold my long shares at Speedtrader, and I rebought them when TNGS held up (again, I had partial fills and some scalping so Profit.ly shows more than 3000 shares). On 1/20, soon after the open, TNGS looked weak and actually went red on the day. I shorted then by selling my long shares and I bought them back for a loss. When it went red again just a little bit later I believed it was time for the death drop and I sold my long shares a final time (2500 at $2.83 and 500 at $2.85). To cover, later that day and the next day, I covered my short shares at IB. I covered 2,000 shares on 1/20 at an average price of about $2.16; IB bought in 800 of my remaining shares at 2.05 the next morning, and I covered the last 200 shares into the 2nd down day morning panic at $1.64. Overall I netted $1913.21 from my trades on TNGS. Even considering the total capital I needed to make these trades (6,000 shares * a maximum price of $2.89 = $17,340), my percentage return was nice (11.0%).

There are of course downsides  to boxing. It uses up capital (and if you aren’t careful you can generate a margin call in one account even though you are not losing money overall), generally requires multiple brokerage accounts, generates more commissions, and requires more planning than just shorting. That being said, as long as the net result is a profit on a stock that would not have been otherwise shortable when you wanted to short it, the end result makes the hassle worthwhile. The only risk to boxing is forced buy-ins of short positions. This actually happened to a couple traders I know who had boxed shares of TNGS in preparation for its big down day. One of those traders was forced by Interactive Brokers to cover his short shares right at the open on 1/20, just an hour before the stock dropped. However, being forced to cover part of a boxed position will only saddle a trader with the costs of commissions and slippage.

A note on the psychology of boxing: I have seen other traders refer to ‘making money’ on one side of a boxed position while ‘losing money’ on the other side. I do not think of it like that. If I am long the same number of shares I am short, I have no net position and no risk. I consider myself ‘flat’ and think about it as if I had no positions in the stock. I then consider myself to be shorting when I sell my long shares.

2nd Down day intraday 1-minute chart

Disclosure: Short 40,000 shares of CWNR at Interactive Brokers and long 40,000 shares of CWNR at SpeedTrader. No positions in any other stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

I no longer recommend InvestorsUnderground.com stock chat

My InvestorsUnderground affiliate link redirects to this page. I stopped using InvestorsUnderground stock chat in December 2010 and I stopped recommending the chat at the same time. I do not recommend products or services that I do not use. This should not be considered a recommendation against IU chat — I simply don’t know enough to have an opinion anymore.

My old affiliate link now redirects to this page.

[Post updated 7 November 2018]

Disclosure: I used to be an affiliate of InvestorsUnderground (IU) stock chat, for which I received 50% of a new subscriber’s first month’s payment and 25% on an ongoing basis. I have not received any affiliate payments from them since December 2010. I am no longer a member of InvestorsUnderground stock chat; my membership ended at the end of 2010. I had subscribed to IU since its inception at the beginning of 2009 and I paid the standard rate of membership for charter members, which was $99/quarter (I also was a member of the free predecessor chat, Green on the Screen, for 6 months starting in summer 2008). From 2009 through 2010, I received a total of $5,720.39 (net of Paypal fees) from Pietro Rossa Trading (the Nevada corporation through which Nate Michaud runs InvestorsUnderground). This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.