Share
market manipulation
I
have alluded several times previously to manipulation
of share prices. Take my word for it, this practice
is common in the Australian market (and no doubt others).
The most
common form of price manipulation is ramping,
or artificially pushing the price up in order to sell larger volumes at
a higher price. Signs of ramping include strong buying right at the close
of trade at prices higher than during the day and big price jumps on low
volume.
If
a company has some very good news to announce and
people close to the company want to buy more stock
at good prices, another common form of manipulation
is that of artificially forcing
the price down, a sort of negative ramping.
Signs of negative ramping are the exact mirror image
of normal ramping, larger than necessary falls right
on the close and big falls on small volume as sellers
inexplicably fail to haggle or stand their ground.
This
is particularly cruel to inexperienced market players,
who fail to notice the warning signs and panic out
of the stock, only to see it suddenly shoot up after
spiralling downward. This practice has been referred
to as 'shaking out the Woodies', a comparison of gullible
investors to wood-ducks, which are notable for the
ease with which they can be lined up and shot.
One
of the favourite times for ramping is when a company's
options are about to expire. Imagine that company
A has a series of options with an exercise price of
20c, but the shares are trading at only 12c. The company
would love the options to be exercised as the sum
of 20c per exercised option goes to them and they
are short of cash. (Penny dreadfuls always are!) But
no-one is going to pay 20c to get a
share they could buy on market for 12c, so the company
must get their price over 20c, even if only for a
while, to make it worthwhile for option holders to
exercise.
Meanwhile
the option holders also want the price of the shares
to rise before their options expire worthless, so
there are plenty of people with a motive for manipulation.
The
lesson is that you should be extremely cautious about
buying into a company that has recently risen strongly
just before an option series expires, the shares have
an unfortunate tendency to drop again once the money
is safely in the company coffers.
NEXT ... Buy
the rumour
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