My 30% gain in 92 seconds today on Interleukin Genetics, Inc (AMEX:ILI) highlights why you should read the comments on this blog. At 8:05 EST Preston wrote in a comment on last night’s watch list, “ILI pre-market leader on news this morning. Has some resistance way back on a 1 year chart that has been passed in pre-market. This could run higher.” I responded at 9:24 EST, 6 minutes before the market opened, saying “I like ILI … only 45m mkt cap still. That was not a huge study though so I wouldn’t get too attached to it.” I bought ILI 36 seconds after the market open and sold 92 seconds later for a $486, 30% gain.
Video recap. Note that the feature that shows my trades on the chart in IB TWS can be enabled by going to Configure > Global Configuration > Information Tools > Charts and then checking the box next to “my trades” under the heading “highlight on chart.” Please also note that my description of ILI’s news is incorrect: they had a diet program based on genetic tests; the news I was describing was for BSDM which was a big gainer yesterday.
Let us say there is a little crappy bank, on the verge of death, that agrees to be bought by a publicly-traded SPAC. The deal appears to be a done deal. The shares of the crappy bank do not budge for over a month. Then, with no news, the bank’s shares jump 100% in two days. The shares of the SPAC barely budge. The bank on the verge of failure is Frontier Financial Corp (Nasdaq: FTBK) while the SPAC is SP Acquisition Holdings, Inc. (AMEX: DSP). SP Acquisition Holdings will give shareholders of FTBK 0.053 shares of DSP and .053 warrants (exercisable at $11.50, over 15% above the current market price) for each share of FTBK. This translates into a value of under $0.70 per FTBK share.
Here are their charts
There are two potential ways to play this. A trader could play this as a reverse merger arbitrage and buy DSP while shorting FTBK. I will look to play this as a daytrade by shorting FTBK with gusto when it goes red tomorrow or the next day. The risk either way is that somehow another buyer will come quickly and buy out FTBK at a higher price. I think that highly unlikely but the huge volume today could be indicative of some corporate raider taking that route. If DSP shareholders do not approve the merger and there is no other buyer, FTBK will likely be forced into bankruptcy.
VeriChip Corporation (NASDAQ:CHIP) -Up on news yesterday, but this move looks a bit overdone. I will look to short on green/red. The move is news-based so I won’t be very aggressive.
BSD Medical Corporation (NASDAQ:BSDM) – Big move today on news. It should be a good mover tomorrow, likely to the upside. I would be a buyer on red/green or a strong open as long as it doesn’t gap up much.
Gray Television, Inc. (NYSE:GTN) – After the last real news, earnings around August 7th, this stock was under $0.50. Now just under $3, this is an easy short on green/red or on a break below today’s lows. It was a good short for me today on green/red but it closed near yesterday’s close. Perhaps tomorrow will be its big down day. If it doesn’t do much tomorrow I’ll remove it from my watch list.
I totally nailed shorts of two of the three stocks on my watchlist from last night. My trading plan was perfect for both. From my watchlist last night:
Gray Television, Inc. (NYSE:GTN) – After the last real news, earnings around August 7th, this stock was under $0.50. Now just under $3, this is an easy short on green/red. Was nice fader on green/red after first spike at the end of August, from $0.95 to $0.75 in three straight red candle days.
China Cablecom Holdings Ltd. (NASDAQ:CABL) – Up 100% in two days, just received a Nasdaq deficiency letter. Short on green/red.
GTN and CABL were also kind enough to fall at different times so that I could concentrate on one trade at a time.
Gray Television, Inc. (NYSE:GTN) – After the last real news, earnings around August 7th, this stock was under $0.50. Now just under $3, this is an easy short on green/red. Was nice fader on green/red after first spike at the end of August, from $0.95 to $0.75 in three straight red candle days.
China Cablecom Holdings Ltd. (NASDAQ:CABL) – Up 100% in two days, just received a Nasdaq deficiency letter. Short on green/red.
VeriChip Corporation (NASDAQ:CHIP) – Big move today on patent news, but it went sideways in the afternoon and broke below support right before the close, just like SPDE last week. I expect it to be a nice short on green/red action tomorrow morning. (See the intra-day chart here.)
Repros Therapeutics Inc. (Public, NASDAQ:RPRX) – I like this long on break of $1.50 or $1.46 or on red/green. True stinker of a company but that would be a huge break with no resistance until $2.20.
Gray Television, Inc. (NYSE:GTN) – After the last real news, earnings around August 7th, this stock was under $0.50. Now at $2.65, this is an easy short on green/red. Was nice fader on green/red after first spike at the end of August, from $0.95 to $0.75 in three straight red candle days.
Legend International Holdings, Inc. (Public, OTC:LGDI) – This spikes occasionally. If I remember correctly Tim Sykes and I shorted this last summer on a previous spike. It has some serious backers, but some highly sketchy aspects too. Previous spikes have been good shorts but so far it is not up enough for me to think it a good risk/reward.
Genova Biotherapeutics, Inc. (Public, OTC:GVBP) – One of the most egregious pump & dumps of the year if not the decade, this failed to bounce Friday after two big down days and I will thus finally look to build a longer-term short position in this.
To sell short, a trader first needs to borrow shares that will be sold short. For the most part, brokers will only lend shares if they have other customers who own the shares. While there is an inter-broker stock loan market, it is not very well developed (LocateStock.com is one company that provides such services to brokers; AQS is another). The method of borrowing shares differs at different brokers. For most normal discount brokers, you need to place a short order and then if no shares are available the broker will reject the order because there are no shares to borrow. Following are instructions for many different brokers on how to borrow shares to short and how to see which stocks are available to short.
Common Brokers
E*Trade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. Shorting stocks priced below $1 per share is prohibited. Etrade has instituted a hard to borrow program that allows for the possibility of shorting hard to borrow stocks. You can read more and enroll here. If a stock is hard to borrow you will be quoted a borrow fee as an annual interest rate and once you accept that fee the order will be sent to the market.
Lightspeed Trading – Lightspeed generally sets up clients to clear through Penson, although they can clear through Goldman Sachs. They tell me that they also obtain borrows that they get from other sources as well. The Lightspeed trading platform will display a symbol if a stock is not readily available to short. According to Lightspeed, “We have a standing request with our clearing firms to locate or pre-borrow a certain quantity of every hard to borrow stock.” If a hard to borrow stock is in inventory through that standing request, it will be marked as available to short in the Lightspeed platform. If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.
Scottrade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. Scottrade generally has poor short stock availability. Shorting stocks below $5 per share is prohibited.
Centerpoint – At the bottom of the level 2 montage there are the letters “ETB”. If the stock is not easy to borrow then those letters are greyed out. In the image below they are in greyed out, meaning that CLNO is not easy to borrow/short. Stocks that are not easy to borrow may be located using the locate monitor in Sterling Trader Pro.
TD Ameritrade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. TD Ameritrade generally has poor short stock availability (although sometimes they will have shares of hard-to-borrow stocks). Shorting non-marginable stocks (including all OTC stocks) is prohibited.
Tradestation – Tradestation primarily self-clears for stock trades. The Tradestation platform has a “Short Locate” function, which search for hard to borrow securities. About 20-30% of the times when IB does not offer shortable securities they can be found on Tradestation (this is according to a reader)). It takes around 30 seconds up to 15 minutes; usually under 2 minutes) to get the answer from a “locate request” – using their built-in platform locate tool. Tradestation does not allow short selling of OTC stocks or stocks under $2.50 per share.
Other random discount brokers – Most small discount brokers clear through Penson Financial (which has now changed its name to Apex Clearing), so the borrows would be the same, although the method for borrowing shares may be different. Noble Trading, Cobra Trading, and LowTrades.com all clear through Penson.
Recommended Broker
Interactive Brokers – I like to use the FTP text version of IB’s short stock list: Shortable Stocks FTP (when prompted for a password just hit enter or okay). The FTP link will show a large text file; use your browser’s search function to find a stock by name or ticker. An HTML version of the shortable stocks list is also available. Both show how many shares are available to short and what interest rate a trader must pay to borrow said shares. For example, the FTP link shows each stock on a line that looks like this: “AMEL|USD|Amerilithium Corp|73282418|US03077G1067|03077G106|-2.69|NA|NA|20000|”. The first entry is the ticker, the next the base currency, followed by name, two different identification numbers I’m not familiar with, the stock’s CUSIP, and then the indicative annual interest rate (positive numbers indicate a short sale rebate, in other words you get paid to hold the short position). The right-most entry is the number of shares available. The top line of the file indicates when the data were updated (ie, #BOF|2010.06.07|13:30:03) and the second line shows each column’s headers. So the line above indicates that as of 1:30pm EST on June 7, 2010 there were 20,000 AMEL to short at an annualized interest rate of 2.69%. The interest rate can change from day to day as the stock becomes more or less easily available to short.
If you log in to your account and go to “Tools > Short Stock Availability” you can see more detailed data on how many shares of a stock were available at different times. Interactive Brokers has detailed instructions on how to use this tool. I have also configured my Trader’s Workstation software to show the “Shortable” column. Below is a detailed video of how to do that. IB allows short selling stocks of any price (although short selling stocks under $2.50 requires more capital) and allows short selling of OTC BB and Pink Sheets stocks. Interactive Brokers does not allow for reserving shares to short; the first trader to get a short order filled gets the shares. Because Interactive Brokers’ system automatically searches for stock to borrow from various lenders and then displays how many shares are shortable, if it shows that there are no shares to short, placing an order to short is almost futile. You can place an order, which will cause the system to automatically look for more shares, but I have found that to almost never result in the system finding shares. The one benefit of placing an order is that TWS should notify you if you place a short order for which there are no shares and shares do later become available.
[Update 2017-5-3]: Interactive Brokers allows preborrowing shares to short of any stock. To submit a preborrow order you must have a Portfolio Margin account (this requires approval and a minimum $110,000 equity in your account). Preborrow orders are accepted on all US stocks and the minimum size for a preborrow order is $10,000. Preborrowing shares reduces the likelihood of a forced buy-in and will enable a short seller to sell short stocks that are hard to borrow. Preborrowed shares can be held without shorting the stock for up to 3 days (afterwards they will be automatically returned). There is a $20 per ticket charge for each filled preborrow order.
See the first video below for how to use the shortable column. The quick way to add it is to right-click the column header just to the right of where you want the shortable column, then select “Insert column before XXX column” > “Contract Description” > “Shortable”.
Below is a video about how to use Interactive Brokers’ short stock availability tool. (Direct link to video)
Disclosure: Updated 4-12-2018 to add info on Tradestation. No positions. I use Interactive Brokers (which I love) and Centerpoint Securities (clearing through Vision Financial). I have my IRA accounts at TDA (formerly Scottrade). I have an account at Etrade that I rarely use. I have a disclosure policy.
If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.
Tomorrow is quadruple witching day: stock index futures, stock index options, single stock futures, and stock options all expire. Expect volatility. Either my scans are not comprehensive enough or (more likely) I lack imagination. Only two stocks interest me much tomorrow.
HCEI – A former zero-volume stock, this ran big today. It likely has more run left in it tomorrow, though as always, with the crappiest penny stocks a trader needs to sell at the first sign of weakness.
SPDE – Big move on news, volume was 5x higher than any previous day in last six months. Tim Sykes is long, I’m long, The Lionmaster is short. It did hold $7 nice throughout the day but did fade a little towards the end and didn’t make new highs towards the end of the day like I like on stocks I hold long overnight. I think this could spike or drop in the morning, but it is quite possible it will do what many one-day spikers have done recently and just be choppy and not move big.
Disclosure: Long 2800 shares of SPDE @ $7.055 that I bought in after-hours trading. I have a disclosure policy.
When the Reaper says “I’m going to destroy this stock,” you might want to watch out. I posted that in the TimAlerts members-only chatroom (sign up here for Timalerts) as I advised anyone long AEXP to sell before I started selling short. AEXP was a Stockpreacher / Beacon Equity pump from $1 and I started shorting at $1.90. I averaged my position up to 6500 shares at $2.12 as it hit a high of $2.55. I later covered at an average of about $1.58 for a cool 25% profit margin. At the time I had finished covering my position my trading represented over 3% of the volume in AEXP today.
I also went long 20,000 shares of GVBP at $0.26 this morning in pre-market trading but that trade was busted as a trade-through. It was still a nice risk/reward: my risk was the $26 in commissions I paid and my potential reward was over $5,000. So even with a 99% chance of the trade being busted I thought it worth a shot.
I am happy with my trading today and am glad to be in the green for the week.
