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Wednesday, 07/12/2006 12:50:26 PM

Wednesday, July 12, 2006 12:50:26 PM

Post# of 204505
Good MM read..>>

If we only knew huh..Good read here on MM games>

Example of MM supporting PPS stock northward:

Let's say that a stock (shell) has been lying quietly at $.25 bid $.50 offered. A limit order comes into one of the MMs to buy at $.50 for a thousand shares. Prior to this trade that MM may be flat (neither long nor short any shares). He fills the order and is now short 1,000 shares. He may raise his bid hoping to find a seller to flatten out his position. But before he realizes it a wave of buyers have come in and cleared out all the $.50 offers. Now the stock is $.50 bid .75 offered. Here comes that Big firm he just sold the 1,000 shares to at .50 with another bid for 1000 at .75. He makes this print. Now he is short 2,000 at an average of .625. The market keeps moving and now its .75 bid 1.00 offered. Now he has to make a decision. Just like investors, MM Hate to take a loss. So 9 times out of 10 he will now sell 2000 at 1.00 making him short 4000 but with an average .81. At this time he would love to see a seller at .75 so he can cover his short and make a few but instead the market keeps moving up. Now it is 1.00 to 1.25 and here comes the buyer again at 1.25. He doesn't want to lose the call so now he needs to sell 4,000 at 1.25 to keep his break even point above the bid. Now he is short 8,000. Market moves up to 1.25 bid 1.50 offer here comes the buyer now he feels he must sell 8000 here because stocks don't go up forever. Now he is short 16,000. And so on and so on. If the stock keeps moving up, before he realizes it he could be short 50k or 100k shares (depending how big his bank is). Finally the market closes for the day and on paper he may look all right in that his break even price may be around the closing price. But now he has to figure out how to entice sellers so he can cover this short. It is important to note that if this happened to one MM it has probably happened to most all of them.

Some ways MM's entice sellers:

1. Run the stock up with a tight spread in a fast market, then open up the spread to slow down the buying interest. After it has cooled off for a little while lower the offer below the last trade right after a small piece trades on the offer then tighten the spread so that the sellers feel they can take a quick profit by hitting the bid; on the tight spread. Once the selling starts the MM's will walk it down quickly by only making small prints on the way down with the tight spread.

2. Another way is by running the stock up in the morning, averaging up their short then use the above technique to walk it down in the afternoon. Hopefully, after doing this for several days, it will demoralize the buyers. The volume will dry up and the sellers will materialize thinking that the game is over. Contrary to popular opinion, MM usually Do Not Cover in Fast moving markets either Up or Down if they are short. They Short More. They usually try to cover after the frenzy is out of the market. There are many other techniques they use but the above are the most popular.


"Luck is a matter of preparation meeting opportunity."

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