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Non-Tech : Knight/Trimark Group, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: mnreddy who wrote (3411)	8/11/1999 3:46:00 PM
From: Herschel Rubin	Respond to of 10027

Murli N Reddy, I think your situation with margin calls is amplified by the many NITE shareholders who are in your situation and this is contributing significantly to NITE's decline. If you sell to capture a short-term capital loss to offset your gains elsewhere, the IRS Wash Sale Rule doesn't allow you to buy back in the next 30 days (or during the 30 days prior). That's not to say you CANNOT buy during those time, but you cannot take the short term capital loss. Your new cost basis is simply changed based on your next purchase within 30 days. So, if you sell for a capital loss you may find yourself waiting for 30 days to buy back, during which time, NITE may stage a remarkable comeback. Another rule that traders use if they go out on a limb with margin in situations where they really believe it is warranted (say NITE in the high $20's yesterday, for example): After committing to full margin based on the assumption that the stock is a steal at these levels, if in the next day or two (you choose your own tolerance level), the stock does not go in the direction you wanted it to, lighten up the load to forestall future margin calls. I've been burned on margin when I've bought stocks that I thought were at a cyclical low but when the whole market was overvalued. However, I've NEVER had a problem buying on full margin on a very low PE stock with good growth rate WHEN the overall market indices have ALREADY taken a beating. You can always lighten the load and you have 3-5 days for share appreciation to occur that can raise your equity ratio above the risky zone. Such is the case now with the Nasdaq having been down 13.8% yesterday. Such was the case on October 8th 1998. At that time, I used a lot of leverage (margin) because there were so many bargains around (just as Morgan has indicated) and pessimism was at an all-time high and it paid off well. But then again, I wasn't trading in the bear market of 1973-74 when the Arab Oil Embargo hit and major market indices slowly and painfully sagged 40%! NITE's situation should stabilize if we can merely trade sideways for 4-5 days which will wash out all margin calls at that price level. During the last 3 weeks, there has been NO REPRIEVE for margined holders (as you've so painfully noticed) as the stock as declined consistently day after day as if there is a conspiracy against margined individual investors. Just visit the Yahoo NITE thread and see how people were in pain yesterday! So, in summary, if we can have 4-5 days of price stability, the margin selling pressure should disappear because margin calls will be washed out. Remarkably, in the days thereafter, buoyancy returns. I've seen this time and time again. By the way, I was talking to my brokerage house, Nat. Discount Brokers and I asked them who clears their option trades. They didn't know, but they offered that SHWD (their own market maker) and NITE do most of their trades in equities. I find that surprising, because I thought they would send as much of their order flow to SHWD as possible, but they must have to route order flow to NITE when SHWD doesn't make a "solid" market in a particular equity.