Today we saw (and I felt) the sting of algos (or manipulated buying) in the shares of
I had to find out why. Here are the facts:
At noon sharp, the stock took off on an extraordinary run-up (from $145 to $149+)
even while the market was down and not going anywhere. Why the dichotomy?
I looked for news that would cause this spike, but saw none. Yet the pps kept rising
without any breaks to recoup as it would in a normal run-up.
The cause: algos, who pushed the stock higher to cause a stampede of short (call)
covering (thereby pushing call prices higher). As call prices declined due to time decay
in the morning, their people bought the $147, $148 and $149 calls for pennies.
As the stock kept rising without taking a break (another sure sign of manipulation),
those who were short those calls were stampeded into closing them. Meanwhile, those
who bought the cheap calls early on were reaping millions of dollars in profit as the
run-up continued. When did it end? At 1pm sharp. Another sure sign of manipulation.
So pay attention, folks. This is where the average investor (such as myself) gets royally
screwed. Algo players know ahead of time when the buying begins and ends. All they
need to do is take a 2nd mortgage out on their home, buy thousands of calls before
noon, then sell them later in the day and pocket millions of dollars.
Example: NVDA Call 148. At 11:30am they were trading from 5-10 cents each as
NVDA was around $145 (my predicted closing price). Let's say you only have $10,000
to spend. So you buy 1000 calls for 10 cents each (total of $10K). At 1pm they were
selling for $1.60 each. For 1000 such calls, you take in $160,000. That's an easy
16-bagger in one hour -- and you knew it was coming..if you're one of the 'lucky ones'.
For these guys, $10K is pocket change; they likely were using at least $100K to scoop
up the cheap calls. Their profit for the day? $1.5M. So, take 6 days off --go to the
beach -- live it up -- and come in for just one day a week, and you are given the game
plan (stock name, start time, end time). Repeat week after week.
The creation of the Weekly options was meant for people like this. Before, there were
just monthly options. Now they can rig the market every Friday instead of once per
month. Yes, the market is rigged, if you didn't know already.
So I now call this "Algo risk" to go along with "Broker risk" and "Presidential risk".
Welcome to the pit.