Paul: Typically most house's have rules that a stock becomes unmarginable for new/additional purchases if it drops below $5. If it continues to drop to below $3.5, then the house is liable to to call the "entire note." I think you're right about the 50% equity rule as well, meaning if you're portfolio of marginable issues falls below that critical threshold, then they make you cough up more dough. Indeed, if your portfolio is too heavily weighted, marginwise, towards one issue, then the broker can make you add more cash. I can understand why...no sense getting to out there on the 'ol leverage limb.
Unfortunately, VLNC is an example of why NOT TO MARGIN a "story" company. VLNC, like all story companies, is on the come and as such subject to all the nasty vagaries of story stocks. My recommendation, and something I'm sure some folks are now learning the hardway(by the way, I learned that same way too in days past on another issue I allowed greed to blind me on), is never go on margin with a story stock. If the story proves true.....THEN GO OUT on that particular limb. Until it does, you've no way of knowing if that "limb" can sustain the weight, so don't venture out on it because you become subject to one hell of a nasty fall.
As for me, I've just about finished overloading my spec. holdings, and should VLNC announce as all expect, I'll then double up on margin. Santa may be very, very, nice to me in Christmas of '98.
Meanwhile, look for further margin, MM related volatility as the fat is removed from VLNC(and from peoples pockets).
John~ |
