Harold: I think the MM's are, like the rest of us, playing this game because of its profit potential. So as such I'd say yah, clearly they want to make as much of a profit as possible, and your aforementioned spread is one mechanism by which profit can be derived. Indeed, the bigger the spread, the more profitable the transaction is to them. However, in light of certain recent SEC rulings, which have been favorable to the day trading community, the MM's ability to maintain hellaciously wide spreads(like 3/4rds of a point or more...or even HALF a point) have been impacted. Why? Because the rulings have allowed anyone whose buy between bid/ask comes first must be taken. So picture the day trading community monitoring all equities with wide spreads(a hallmark of the "breed"). There they are when they see a spread open up. WHAM! Quick as an Energizer bunny( ;-) ) the trader will place a buy just above bid before the MM's can counter, get it hit and then "flip" it to the ask for a quick profit. In affect, stealing from the MM's mouths. Of course you just KNOW how MM's probably feel about THAT, eh? So tactics are now beginning to change somewhat, given any/all rule changes(of course this is a generalized statement as you can still find certain equities with wide spreads). I think the popular term for all of this type of activity in University circles is Game Theory. ;-)
As for your comment about placing a market bid order on OTC stocks and getting your head handed to you.....Yup, you have to be careful with using market orders. A basic rule of thumb I follow is never place a market order on a fast moving stock, and NEVER place a market order at open. Odds are you'll be the one representing the high/low price for the day of the equity in question. However, this is not to say one should NEVER do a market order. I HAVE placed market orders on stocks I follow when they become extremely volatile, that is, they swing ~2 points per day. When I see a stock I've tracked closely get hammered in pre-market(or intra-day market) activity, and hammered waaaay beyond what my observation feels is sustainable then I jump in for a traders play. I've generally been successful when doing this, but you've got to follow the "action" of the stock closely before attempting something like this, as you could very well end up being introduced to your own head. ;-)
As for VLNC being shortable.....hmmmm....what's the float on this equity right now?? We know the shorties have taken a goodly position. We also know this stock is thinly held(meaning it resides in relatively few "hands"). Is it possible the shorties have painted themselves into a corner, eg. all available shares are accounted for and nary a one is now available? I tend to doubt this but it IS something to look into.
And as for margining(whewww, long post, eh?)...well, I know two of my brokers(DLJ/Etrade) will allow margining of VLNC downwards of $4.5. Ultimately, to a certain extent I think the "water line" for margining such as VLNC depends on your relationship with your brokerage house(s) and the amount of monies you maintain with them. But as you know, I've got this "knee jerk" reaction to placing the words margin & VLNC in the same sentence. DON'T DO IT! This is another one of my NEVER's. NEVER margin a speculation, until said speculation breaks through in the manner you hope. Talk about the potential for getting yer head handed to ya, eh?
Regards!
John~ Oh..ps: Market Maker is two words. ;-) |
