Let's assume this happens for the rest of the week. I've now sold 100,000 shares and the stock is down $1.25. This is why a discount bid right off the bat is a more attractive proposition. But, there's nothing I can do about that, so at a certain point I have to lay off for a while (as you mentioned earlier) and most times the stock will start to rise on light volume. Unfortunately it never seems to go back to the level from where I started (barring any news, market conditions, etc.), so I start the process all over again. I also forgot to mention that limits are a necessity. Giving a large market order to a specialist is crazy. Many times I tried giving medium sized orders (25,000 - 50,000 shares) to the specialist and tell him he's "not held" (meaning he can use his discretion as to how to execute the order - similar to a market order but he is not held accountable if stock trades and I am not included). But most specialists don't like that kind of responsibility (maybe because it involves thinking), and in turn treat the order like a market go-along (or a market participate). That means that anytime a seller comes in and hits the bid I will sell the same amount as the other party and split the print. You can imagine how fast a stock can go down on only a few thousand shares trading using this method. That's why limits are essential in stocks like these. Unfortunately (or perhaps fortunately for you), not every institution handles their orders like that. Some really do give market orders for fear of missing out on a print, thus not seeing the big picture. One thing to look for are those double prints on the tape heading in the same direction, especially near or on the bid. Two (or sometimes three) lots of 1500 shares of PSC trade at $26.90. A few minutes go by and then two lots of 1200 shares trade at $26.80. Next comes two lots of 2600 at $26.65. This let's you know that there are two sellers out there, and their fear of each other will probably push the stock down harder and faster than it needs to be. The problem is that neither seller knows how much size the other trader has, and does not want to miss out on any prints. In those situations though, I would cancel the order off the floor and see how the other guy reacts. If he keeps going and the prints get larger I'll have to get involved again. But many times the other trader will sell a little more, and then realize he's all alone and try to let the stock lift. Once he decides where he wants to sell some more stock, I'll join him with the same amount of stock for sale, with the same limit - sort of a "gentleman's agreement" where we both realize it is to our mutual benefit to cooperate with each other. Of course, it doesn't always work this way - sometimes (very rarely though) one guy will take advantage and that's when the fun begins. Once the "rules" have been broken otherwise normal stocks start trading all over the map. One word of caution though - identical prints of 500 shares or less are rather useless in my opinion since small retail dot orders get executed all the time. Anything over 1000 shares is preferable... Another probably obvious thing to look for is size on the offer, but even if it disaappears. I can't tell you how many times I gave an order of 25,000 or 50,000 shares to a specialist, specifically telling him not to show it, and then punching up the ticker and seeing 50,000 shares just sitting on the offer. This was almost a daily occurrance. Specialists are human and make mistakes. Many mistakes. I would then have to call the floor and rant and rave, and have him remove it, with the damage already being done. When you see size offered on an illiquid listed stock and then it disappears, it most likely is still for sale. Yes specialists DO type in an extra zero sometimes, but the clue there is watching a 50,000 share offer turn into a 5,000 share offer. In that case, you probably need to wait to see what happens. A typical pattern to look for in this example, is when an illiquid listed stock sells off on decent volume, where the offer is constantly being refreshed at let's say at least 10,000 shares. Then a larger print goes up at a new low, say 20,000 shares or more. You then see another 10,000 shares offered at this new low, and then it just disappears. As an institutional trader, you're more likely to take a brake after a big print goes up, so after you get your report you tell the floor broker to lay off for a minute to let it lift. Meanwhile the specialist still has more stock to sell for you in his book. It takes a minute for the floor trader to tell the specialist to lay off, and then the offer disappears. The spread will now widen, and most likely the stock will lift on smaller prints (this gives the buyer of that last print a warm fuzzy feeling). When the stock lifts enough, or volume starts to get a little heavier, you give the order to the floor again and we see another 10,000 to go at a higher price. If this offer stays out there and nobody's buying, now is a good time to go short. Eventually the seller will get impatient and start hitting bids. Remember, the seller has already sold a significant amount of stock at a lower price, so he will have no problem selling it down. The buyer on the other hand is less likely to step up and pay higher prices, especially when he knows that the seller is willing to sell at a lower price, since he did it before. Obviously this is not foolproof (nothing in the market is), but I have seen this happen over and over again. Hope this helps... DeeMan
Great question even better answer. If you have any insight into nyse bigger caps I am always seeking to improve my education thanks.
jem, I sent you a private message here on elitetrader. Could you take a minute and look at it? Thanks, Leland P.S. Thanks Deeman for the great posts. Those are probably two of the most informative posts I have ever read...
DeeMan--This is just great material. I thank you for sharing it with us and I look forward to hearing more of your knowledge. It's extremly difficult to find information on specialist behavior and misbehavior. This inside info is golden man. This is the stuff that will make us better traders. Welcome to Elitetrader.
Deeman, that's gotta be one of the best posts I've ever read. Can I review your book before it is published? ~EC
DeeMan, Great post. I'd love to hear more about how buy-side firms buy and sell their positions. Very helpful indeed. -- Punter
Wow Deeman, I am in awe. This answers tons of questions of mine. This is most likely the best post I've ever read on these boards. I truely appreciate it, and welcome to our home here. Please feel free to share any other floor behavior that you know of. Anything would be useful.
DeeMan, sorry if I missed this, but where do you fit in the trader scheme of things (i.e., educational background, kind of position you now hold, advantages and disadvantges you might have relative to other traders, nature of funds being traded, etc.)? Thanks for any info like that you can provide us about the context of your great post.