Themis Trading Whip Stock Report Identifies Five New Equities Likely to Be Affected by Algorithmic Trading; Volatility More Than Double That of Nasdaq-100
CHATHAM, N.J.--(BUSINESS WIRE)--Dec. 15, 2005--Themis Trading LLC, an agency broker for institutional money managers, today named Gilead Sciences (NASDAQ: GILD), Starbucks (NASDAQ: SBUX), Staples (NASDAQ: SPLS), Yahoo (NASDAQ: YHOO), and Xilinx (NASDAQ: XLNX) to the Themis Trading Whip Stock Report for November 2005.
As a group, the five new Whip Stocks had more than twice the level of average daily intraday price volatility in November as the Nasdaq-100 Trust (NASDAQ: QQQQ), an exchange-traded fund designed to correspond to the performance of the Nasdaq-100 Index.
Whip Stocks, as defined by Themis, appear very liquid, but experience higher intraday price volatility, as a likely result of increased algorithmic ("algo") trading - a new form of electronic trading rapidly gaining popularity on Wall Street. High intraday volatility can result in wide price swings that can significantly affect trading profits or losses.
Themis publishes the monthly Whip Stock Report as a value-added service for asset managers, when determining whether to use computer-automated algorithmic systems or human oversight to work trades through electronic execution systems.
"The primary benefits of algo systems are the commission cost savings, relative to traditional human traders, and the potential to limit market impact by automatically slicing large block orders and then systematically feeding smaller trades into the market," said Joseph Saluzzi, a partner at Themis Trading LLC. "However, asset managers can actually end up paying more in the long run with these systems, if the algo computer programs are causing price whips and are executing trades at inopportune price points, near an exaggerated high or low."
In order to help evaluate the magnitude of the "Whip Effect" on a certain stock, Themis has introduced the Intraday Whip Ratio, which compares a stock's average daily intraday price volatility for the month, to its average change in closing price per day for the period.
"An interesting new aspect demonstrated by this month's report is that the Whip Stock phenomena is not confined to technology stocks, but also includes biotechs (Gilead), restaurants (Starbucks), and big box retailers (Staples)," said Mr. Saluzzi.
November Whip Stocks Summary Data
Data for 11/1/05-11/30/05 on average daily basis
Listed in order of Intraday Whip Ratio
DailyIntradayIntraday
Trade Daily Price Price Whip
Stock Symbol Size Volume Change %Move % Ratio
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Staples Inc. SPLS 299 5,228,888 0.09% 2.19% 24.3
Gilead Sciences Inc. GILD 244 5,174,585 0.31% 3.07% 9.9
Yahoo ! Inc. YHOO 293 21,789,796 0.40% 3.10% 7.8
Starbucks Corp. SBUX 274 5,548,327 0.33% 2.20% 6.7
Xilinx Inc. XLNX 270 4,944,351 0.48% 2.36% 4.9
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Whip Stock Average ---- 276 8,537,189 0.32% 2.58% 8.1
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Comparative Index
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Nasdaq-100 Trust QQQQ 1,362 81,832,939 0.27% 0.98% 3.6
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During November, the five new Whip Stocks each had an average daily volume of at least 4.9 million shares and an average daily trade size of less than 300 shares. The average change in price per day for the group was 0.32% of the average daily closing price.
"These factors give the initial impression that the stocks trade in a highly liquid fashion, with low spreads, and would thus be good candidates for algo trading," said Mr. Saluzzi.
However, the average daily intraday price volatility for the Whip Stocks during that same period was 2.58% of the average daily closing price, resulting in an Intraday Whip Ratio of 8.1.
By comparison, the Nasdaq-100 Trust, which holds all of the top 100 largest nonfinancial securities by market capitalization listed on the Nasdaq Stock Market, had an Intraday Whip Ratio of 3.6, with average daily intraday price volatility of 0.98%, and average daily price change of 0.27%, for the month.
Upside/Downside of Algorithmic Trading
Brokerage firms are providing algorithmic trading systems to institutional investor and hedge fund clients as an easy way to slice large block orders and then execute the resultant smaller trades on an automated basis throughout the day. With low commissions of $0.01 a share or less, growth has been significant, with some estimating that these systems now account for 25% of all equity trades.
"In the case of these Whip Stocks though, algorithms, particularly the less sophisticated ones, are chasing each other and the market, forcing exaggerated movements up and down the price ladder," said Mr. Saluzzi. "There are also signs that day traders and other, more advanced predatory algorithmic systems have learned to track and take advantage of these abnormal price movements, further exaggerating the Whip Effect."
Company-Specific Whip Data
Complete November Whip Stock data, including average daily prices, intraday volatility, price change and Whip Ratios, is posted and available for download in easy to read table format at the news section of the Themis website, www.ThemisTrading.com.
Based on November trading data, the Themis Trading Whip Stock Report this month also renamed all 10 stocks from its inaugural October 2005 report: Adobe Systems Inc. (NASDAQ: ADBE), Amazon.com Inc. (NASDAQ: AMZN), Amgen Inc. (NASDAQ: AMGN), Apple Computer Inc. (NASDAQ: AAPL), Broadcom Corp. (NASDAQ: BRCM), eBay Inc. (NASDAQ: EBAY), Google (NASDAQ: GOOG), Qualcomm Inc. (NASDAQ: QCOM), Research In Motion Ltd. (NASDAQ: RIMM), and SanDisk Corp. (NASDAQ: SNDK). |
