So those following my stock trading saga might be familiar with the fact that for awhile I was playing around with some penny stocks. One of those penny stocks was the ticker DRYS: a shipping company in Greece.
This company has fallen on hard times, as have most dry good shipping companies, and saw their stock price fall 98% in the last year. The problem with this is that the major exchanges generally have requirements for remaining listed. So if a company experiences a drastic enough drop in their stock price they might be threatened with having their company delisted. That's not good.
So what companies do is they reverse split so that their share price stays above the minimum requirements for the exchange. So if my company has 100 shares worth $3.00 each and the requirement for my exchange is $5.00 per share, I'll do a 5:1 split which will make the value of each share $15 but reduce my outstanding shares from 100 to 20. This company's stock price fell so much this year that they did 6 reverse splits, going from 270,000 million outstanding shares to just a million.
So they effectively became a low float stock, which penny stock traders love because low float stocks are volatile and easy to pump. And pump it they did. If you had invested $10,000 in this company at a price of $5.00/ share on Friday, your investment would be worth $222,000 today. Two days of trading and $10,000 - $222,000. There are people on the boards showing their accounts and they made a quarter million dollars in 48 hours.
But it's not all fun and games
What happens here is basically a game of hot potato. People buy because others are buying and buying pushes the price up. Each person hopes there's more suckers behind them and largely the price inflates as matter of self fulfilling prophecy until it doesn't. Eventually people realize it's up on nothing and they're no longer willing to take the risk. And so the stock goes crashing back to it's original price.
This one is a little worse, at least for now. 43 minutes before the market opened this morning the NASDAQ exchange halted trading of this stock ticker pending a request of information from the company. It's important to note that the company is teetering on the verge of bankruptcy. Nobody knows what will happen now. The company could be un-halted tomorrow at which point all the amateur investors looking to get rich quick will immediately dump and cause the price to go tumbling, or worse, there might be fraud involved at which point everyone with money in the stock is effectively locked into it until it's unsalted and if it's determined that there is fraud it's much more likely to be un-halted closer to it's original $5 price. At worse, people that bought into the peak at $115 a share would lose everything. At best, those people have their money tied up indefinitely until the stock is un-halted.
This company has fallen on hard times, as have most dry good shipping companies, and saw their stock price fall 98% in the last year. The problem with this is that the major exchanges generally have requirements for remaining listed. So if a company experiences a drastic enough drop in their stock price they might be threatened with having their company delisted. That's not good.
So what companies do is they reverse split so that their share price stays above the minimum requirements for the exchange. So if my company has 100 shares worth $3.00 each and the requirement for my exchange is $5.00 per share, I'll do a 5:1 split which will make the value of each share $15 but reduce my outstanding shares from 100 to 20. This company's stock price fell so much this year that they did 6 reverse splits, going from 270,000 million outstanding shares to just a million.
So they effectively became a low float stock, which penny stock traders love because low float stocks are volatile and easy to pump. And pump it they did. If you had invested $10,000 in this company at a price of $5.00/ share on Friday, your investment would be worth $222,000 today. Two days of trading and $10,000 - $222,000. There are people on the boards showing their accounts and they made a quarter million dollars in 48 hours.
But it's not all fun and games
What happens here is basically a game of hot potato. People buy because others are buying and buying pushes the price up. Each person hopes there's more suckers behind them and largely the price inflates as matter of self fulfilling prophecy until it doesn't. Eventually people realize it's up on nothing and they're no longer willing to take the risk. And so the stock goes crashing back to it's original price.
This one is a little worse, at least for now. 43 minutes before the market opened this morning the NASDAQ exchange halted trading of this stock ticker pending a request of information from the company. It's important to note that the company is teetering on the verge of bankruptcy. Nobody knows what will happen now. The company could be un-halted tomorrow at which point all the amateur investors looking to get rich quick will immediately dump and cause the price to go tumbling, or worse, there might be fraud involved at which point everyone with money in the stock is effectively locked into it until it's unsalted and if it's determined that there is fraud it's much more likely to be un-halted closer to it's original $5 price. At worse, people that bought into the peak at $115 a share would lose everything. At best, those people have their money tied up indefinitely until the stock is un-halted.