Cornering a stock is a good trading strategy, I think!

Discussion in 'Strategy Development' started by OddTrader, Jul 2, 2008.

  1. Cornering a few stocks is a good trading strategy, I think! People could have different ways (welcome to share here) to do it.

    If not a good strategy, why ?
  2. The problem with cornering a market, is getting out of the position.

    Cornering a stock is a very difficult thing to do. Why? Because if you push the stock price to far above it's fundamental value then the insiders are going to start selling to you... and they're able to print the stock...

    It's also a dangerous thing to do, since you could end up with a rather large position and no liquidity to exit [not a problem if you're going Warren Buffet]

    The other factor that might lead to problems is the fact that you can't buy more than a certain % of a stock without doing a public acquisition offer. [i think it's around 20-25%]
    So a corner is not possible, unless you're going the Warren Buffet way... But you need serious money to do that.
  3. "The Case of the Curious 'Corner' "

    "Cornering a stock is a maneuver capped by a one-two punch. This is how it works:

    One group acquires not just all the available shares of a company, but more than all of them - an arrangement made possible because some investors sell the shares short. Those investors, betting the share price will fall, borrow shares and sell them into the market.

    Then comes the one-two punch. Having accumulated the shares, the group controlling the securities demands that the shares it has lent to short sellers be returned. With other shares unavailable, the shorts cannot honor that demand.

    This allows the group controlling the securities to buy shares to satisfy the obligation, using the short sellers' money. That is known as a ''buy-in.'' Since the group is the only one with any stock that can be sold, it can set any price it wishes. The stock is thus cornered and the shorts are squeezed.

    In the war between bulls and bears, longs and shorts, a stock corner is the ultimate victory for the longs - or at least it seems that way to those who dream of corners.

    But historically, that victory has often been Pyrrhic. Those who corner the stock own a company for which they often have severely overpaid, because in accumulating their position, they have sharply bid up the shares. Often they can sell only at a much lower price.

    In two celebrated corners of the 1920's, involving the Stutz Motor Car Company of America, an auto maker, and Piggly Wiggly Stores, a grocery chain, the men who engineered the corners went bankrupt.

    Since then, regulations and legislation have been implemented to discourage corners, and such transactions have become a rare phenomenon. That is why the Chase case has gained attention exceeding the size of the company involved.

    To be sure, there has been no allegation by regulators that anyone tried to arrange a corner in Chase Medical, an obscure Florida-based chain of health clinics. But from what is known, it is clear that those buying the stock - customers of the brokerage firm Moore & Schley, Cameron & Company - came very close to producing a corner, whatever their intent. The only thing that kept the situation from progressing further was the trading halt.

    Although the issues raised by the case are complex, one fact is clear: Millions of dollars in profits and losses may be gained, or lost, as a result of whether the Government allows the apparent corner in Chase Medical to proceed to its conclusion. Since there are few precedents, the S.E.C.'s options are not clear. Louis Loss, a former S.E.C. official and retired professor of law at Harvard University, said someone who planned a corner might be charged with violating Section 9(a)2 of the Securities Exchange Act of 1934. That bars trades when the intent is to raise the price of a stock with the purpose of inducing others to buy it. The normal remedy in such cases is to bar sales by the violator until the effect of his actions is no longer present in the market. Whether such a step would prevent a buy-in is not clear. "
  4. In reality cornering doesn't work too well. When word gets out that you are running a corner, the price will run away from you. It also requires tremendous capital.
  5. Louis Loss, a former S.E.C. official and retired professor of law at Harvard University,
    A SEC official and law professor got out thunk? There's a suprise for ya. The surname Loss is an ancesteral corruption of Loser.
  6. LOL :D
  7. How about the lead-time in order to issue new stocks?

    imo, technically stocks are good for investment with a relatively longer time-frame, however not suitable for trading systems with a short time-frame. This is mainly due to, after a portion of issued stocks being held for long-term investment, there would be logically only a limited number of shares that would be available for trading.

    Therefore, some big players could manipulate some targeted stocks, making cornering possible.
  8. I think stocks are quiet good for high frecuency very short term trading, the fragmentation of the market makes it possible for a trader to make 1500 trades in one day and end up net possitive a few thousand $ for the day holding positions for no more than 1 or 2 seconds at the time.
  9. Keep thinking! :D
  10. Just cause you can't do it, don't go saying it's not doable...
    #10     Jul 13, 2008