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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: diana g who wrote (51866)9/25/1999 12:00:00 PM
From: Think4Yourself  Read Replies (2) of 95453
 
Re margin calls:

There are two ways margin calls are caused One is the % total equity you mentioned. Brokers tend vary this % depending on the makeup uf your portfolio. In other words your equity % requirements can change as you make trades. It us usually in the low 30's for most brokers.

The second is the minimum price os stock that is marginable. Most brokers set that limit at $5. A number of stocks broke below $5 this week: RRC, TMR PKD, others. If folks were using those holdings as margin, they suddenly lost all that %. That's primarily why RRC, and PKD saw their prices suddenly collapse (and CRK last week). TMR did NOT collapse and has in fact shown strong buying interest at any price below $5.

One thing hedge funds and some individuals do is to short $5 stocks to try to force margin calls. If it works the stock often collapses to the mid $4's or lower within a few days and they buy back at a nice profit. If it fails they lose because they have to buy back the stock at whatever price they can convince the folks owning it to sell. If it didn't collapse no one is welling to sell that stock to cover their margin call. (i.e. the stock is undervalued where it was in the $5 range)

The combination of market drop and hedge fund attacks on $5 stocks led to the large number of margin calls yesterday. I called the broker to confirm a large number of margin calls had been issued. He said yes.

Since many stocks recovered, at least in EnP land I don't see the same carnage occurring Monday. Given earnings are around the corner congrats appear to be in order for the buyers. I learned the importance of "keeping powder dry" yesterday.

Hope this helps!
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