September 27, 2014

Trade Recap - ALKM

This was my worst trade since coming back to trading in August. So let's see why.

First off, I heard about the OTC ticker ALKM being a StockTips pump and dump from @StockRealist via Twitter--as well as via his blog here--around early September. My goal was to put ALKM on my watchlist and watch for any over-extension on the daily chart. If that happened, I would begin putting in IB good-til-cancel (GTC) orders to short the stock for a couple reasons: 1) It's very difficult to find borrows on these stocks and IB GTC orders sometimes get filled pre-market; 2) Odds were this POS was going to collapse, and it was only a matter of time.

On September 5th, everyone and their brother thought ALKM was the next StockTips pick despite StockTips not revealing their pick. As a result, the buying came in fast and the stock went nuts--going from around .10 to over .50 in a single day:

However, it turns out that StockTips delayed their pick that night or so. Well the next day ALKM tanked right back down to the lows around .10. Then all of a sudden StockTips came out with their stock pick: ALKM! So I got back into go-mode, and started stalking ALKM for an over-extension.

ALKM tripled and then quadrupled from the lows at .10 to around .40. I thought the end was near and a breakout was unlikely because this had been a botched pump and dump. Moreover, there was a halt risk for longs and the promoters. So I wanted in, but shares to short were nowhere to be found. I did get my chances after a pullback to the high twenty cent area when shares to short opened up at IB.

My position size and risk (stop loss) were higher than usual because I thought this was a sure thing. However, I failed to consider the likelihood of a broker buy-in. If I had, I think I would have used less size. Anyway, ALKM continued to rise and I put in GTC orders trying to average up in the .40s--near the breakout I didn't think would happen. But, I got a buy-in noticed from IB. I had to cover my shares by the end of the day on the 23rd or IB would do it for me. So I covered into dips when I got home.

And the following day, ALKM tanked. 

So in the end, the stock I focused on would tank as predicted. I wasn't able to average up like I wanted, and then got bought in. The ALKM lessons learned are:

  1. Take into account the possibility of a buy-in three to four days from the trade, and whether or not the stock dumping is more likely to happen before or after a buy-in.
  2. Take this analysis into account when determining position size/stop loss, or avoid the trade altogether if the odds aren't so good.
  3. Consider a tight stop with a larger position. I can continue putting in GTC orders if the stock goes up, get a better entry, risk less money, lessen my buy-in risk, and possibly capitalize on the actual dump.


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