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Trader loses 130k+ on short, owes eTrade 100k


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Trader loses 130k+ on short, owes eTrade 100k

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  #1 (permalink)
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A trader started a GoFundMe page to pay back $100,000 to E-Trade after a disastrous short - Business Insider

Read the article above, but here is an excerpt


Quoting 
Hello to all you traders out there. I’m starting this page out of the recommendation of other traders in the community.

I hesitated on doing this but I literally owe Etrade $106,445.56 as of this moment what would you do if you were in my situation? I’ll do whats needed and sell what I have to get them paid but if someone feels my pain and is willing to help out—who am I to say no?

If you don’t want to donate I understand, at least read my story of what happened today and protect yourself from the same happening to you! This is a terrible lesson for me but if this helps just one person than I’m happy I wrote this.

I’m a fairly new trader, been trading since about March of this year. I have learned alot about the community and trading…well not enough about trading as you will soon hear.

I have a fairly small account, but its over PDT. As of this morning it was $37,000. I keep it small because I wanted to manage risk, the most I can afford to lose is what I have in the account….$37,000. When I get some profits I take them out of the account because I wouldn’t want to lose more than $37k.

I was holding KBIO short overnight for what I thought was a nice $2.00 fade coming. At the close of the bell I saw the quote montage clear out and figured today there was no action after hours in the stock. So I went to my office for a long meeting. I got out of the meeting and saw a message from one of my buddys, he asked if I was ok since I was short KBIO….my heart dropped. “Shoot did I blow up my account, everything I worked for? I don’t want to lose all $37,000 that would be terrible.” —It was much worse.

The stock was at $16 and my account was negative over 100k. I figured it was a mistake, Etrade would never let that happen, they must have cut the position when my account got to $0….nope. I immediately called them and they confirmed I still owned all the shares. He says that it got out of hand too fast for them to cover me, he says that all he can do right now is cover. I was devistated. I asked him to cover at $16 and he waited trying to find me a good exit. I told him to do it asap and the fill was around $18.50 avg.

At the moment not only is my $37k gone, but I now owe ETrade the negative balance of over $106k. I always knew I could blow up an account and I was financially able to “afford” to lose the $37k. Never in my wildest dreams did I imagine that Etrade would NOT have some sort of stop or circuit breaker in place that would automatically cut a position if the account went to $0…..how could they ever let it get to -$144k loss on a account that small! Also, why did I have to call them to find out what was going on, why did they not alert me or call me when it went neg???

I’m never one to ask for a handout and honestly I’m kinda not sure if I should post this but here we go. I’m sure it will cause lots of controversy on whether or not I deserve even a $1 donation but it doesn’t hurt to ask. Anything you traders can do to help me get a little out of this hole would be a blessing for me. Anything donated will go 100% to simply paying Etrade some of this $106,445.56.

My plan moving forward is to liquidate mine and wife’s 401k’s and try work out a payment plan with Etrade. I’m also going to ask them to help out in some way…thats a longshot. I will pay them and be back trading….only with set stops this time. What an expensive lesson that was.

I hope my story helps someone else from the same.

Mike

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I saw it today on marketwatch. That is sad and bad and I knock on wood.

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A long time ago a friend and I were both long the same tech for a few days. I didn't like it so much, and exited at the close. A few minutes after the after hours close, news broke of major fraud and cooking the books. Friend ended up losing nearly his entire account on it, and he was long.

Lots of lessons to be learned here, but diversification is an important one when it comes to stocks.

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We all pay our tuition to the markets one way or another. But to receive a bill that large, in one day, is terrible. I may pitch in a few bucks just as a gesture and show of support. Though I'm sure some people will revel in his misfortune and say he brought in on himself. Which he did, but I'm not going to kick a man while he's down.

If this is the worst thing that happens to him this year, he's still had a pretty good year.

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Imagine losing every dollar in your current account right now, in 2 hours, while you were away at a meeting. Then imagine tripling that loss and having to liquidate your retirement accounts for you and your wife.

I feel for him, I really do.

Mike

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https://www.gofundme.com/jwctrek

On his GoFundMe page, it seems the comments are pretty harsh.

I think everyone needs to learn countless lessons in trading, but losing triple your account in a couple of hours is a bit extreme for anyone to cope with.

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I noticed he said he would be back trading, but with stops.

I am not sure he realizes (though, surely...) that let's say he was short $2.00 and had a stop at $3.00, if the stock is halted or the deal is done after hours, it can reopen at anywhere it wants, for example re-opening at $12.00 and then his stop gets filled at $12.

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I do admire the guy for saying he will pay his broker back. Legally, he's on the hook. I don't know what his financial situation is, or how old he is, but 100k is not chump change. People have filed bankruptcy for much less.

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I feel absolutely nothing for this guy. In fact, I think he's got a lot of nerve begging others for money to help him out of this. Of course he'll spin this as it wasn't his fault, market manipulation, insiders screwed me over, e-trade didn't liquidate me, wah wah wah. Anything to deflect the blame. This is what happens when you don't treat the markets with respect. I think he should sit in the corner by himself and eat his humble pie but that's just my opinion.

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I do admire the guy for saying he will pay his broker back. Legally, he's on the hook. I don't know what his financial situation is, or how old he is, but 100k is not chump change. People have filed bankruptcy for much less.

Mike

The article I read said he's 32. One of the comments noted that after he liquidated, the stock dropped by 50%. So if he'd waited the three-day period he'd owe only 50k. But who would be able to do that? Who has the nerves? That's just an extra twist of the knife right there.

I remember the Swiss Franc move in January. I trade a foreign currency overnight and of course I do keep a stop in place, but it makes me wonder if it's just a matter of time...

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I just donated to this guy, I feel for this guy and I donated because it's a very valuable lesson to every trader...Thanks Mike for sharing...I know ETRADE suck but this is huge

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Pariah Carey View Post
The article I read said he's 32. One of the comments noted that after he liquidated, the stock dropped by 50%. So if he'd waited the three-day period he'd owe only 50k. But who would be able to do that? Who has the nerves? That's just an extra twist of the knife right there.

I remember the Swiss Franc move in January. I trade a foreign currency overnight and of course I do keep a stop in place, but it makes me wonder if it's just a matter of time...

Your broker might not wait 3 days. Being big in the red they can close your position at anytime.

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I feel absolutely nothing for this guy. In fact, I think he's got a lot of nerve begging others for money to help him out of this. Of course he'll spin this as it wasn't his fault, market manipulation, insiders screwed me over, e-trade didn't liquidate me, wah wah wah. Anything to deflect the blame. This is what happens when you don't treat the markets with respect. I think he should sit in the corner by himself and eat his humble pie but that's just my opinion.

I think he said he was a new trader, only trading for 6 months. Did you know everything there is to know when you only had 6 months experience?

I think the kid deserves a little sympathy, if nothing else. I'm not sure how much 130k is in relation to his total net worth, but for most 32 year old's it would be quite a bit. The fact he is liquidating retirement accounts and still needs a payment plan gives some insight.

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i feel for him. shit happens. it can happen to anyone...any given day with even stops being there.

@bmtrading9 you did a good thing. Nice....will do the same

got to hand it to him...he is diligent to pay up. we all borrow in some fashion or the other. when you short you borrow. i think he has courage.

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That's a tough market lesson indeed. I've made some pretty big mistakes when first trading but nothing on that level.

As you say, leverage (too much) and diversification (too little) are the key lessons there. Also, these types of stocks can be extremely volatile. If only he had decided to buy puts instead or covered his position with some likely cheap call protection...

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I think he said he was a new trader, only trading for 6 months. Did you know everything there is to know when you only had 6 months experience?

I think the kid deserves a little sympathy, if nothing else. I'm not sure how much 130k is in relation to his total net worth, but for most 32 year old's it would be quite a bit. The fact he is liquidating retirement accounts and still needs a payment plan gives some insight.

Mike

No, I didn't then and I don't now. My knowledge is rudimentary at best, but I know at least not to get my head blown off by a trade and to treat the market with a modicum of respect. This guy did neither and now wants a parachute. I hope he can bounce back from this, but he must have known this was a possibility.

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I've never been in a situation like this, but it certainly seems like the panic after hours sell cost him almost 5$*8400 (42k). Unfortunate that the broker wasn't more supportive and instructive. Spooky man. Sosnoff tells a story of a guy who had several hundred google calls that expired 1 penny in the money, got assigned, and then gapped down on monday to the tune of a 3 million dollar loss/margin call. TDA siezed the account after the guy said he couldnt cover it, and spent 3 hours trading out of the position on the open.

I feel for this guy, who didnt know its possible to get hit for a 15$ move on a 2$ stock. As one of my favorite mentors once told me "don't carry gold or crude short over a weekend, bud"


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Some of the comments remind me of how much people can be assholes



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Some of the comments remind me of how much people can be assholes



Mike

I agree, that is way over the line. He made a bad mistake but that's uncalled for.

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Do I understand this correct that he had all the money he had available to trade in this one position?

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The article I read said he's 32. One of the comments noted that after he liquidated, the stock dropped by 50%. So if he'd waited the three-day period he'd owe only 50k. But who would be able to do that? Who has the nerves? That's just an extra twist of the knife right there.

I remember the Swiss Franc move in January. I trade a foreign currency overnight and of course I do keep a stop in place, but it makes me wonder if it's just a matter of time...

That Swiss Frank incident made me to stop trading forex, even though I was holding very small, afterthat I stopped even looking at forex. I was lucky that I didn't had any Swiss Franc position that night. One of my friend lost a fortune on selling calls on GOOG not even knowing how that works...

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Some people are also really weird.



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That Swiss Frank incident made me to stop trading forex, even though I was holding very small, afterthat I stopped even looking at forex. I was lucky that I didn't had any Swiss Franc position that night. One of my friend lost a fortune on selling calls on GOOG not even knowing how that works...

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Swiss frank was kept by the Swiss National Bank above the level 1.20 so everybody knew there will be a day when the support will disappear and it is going to be ugly.

Flash crash like situtions happens time to time no matter what you trade. You are not safe with your index futures because in extreme situations there will be no depth to buy or sell and it can gap for example 1000 points lower/higher. It can easily be a system error in broker's platform or even in clearing co. and you will be the one who pay the bill. Thanks to that small text in our account agreements

But life is: You know you can die on the streets and still you keep walking

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Some people are also really weird.



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What the flying fuck...

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Quoting 
The stock was at $16 and my account was negative over 100k. I figured it was a mistake, Etrade would never let that happen, they must have cut the position when my account got to $0….nope. I immediately called them and they confirmed I still owned all the shares. He says that it got out of hand too fast for them to cover me, he says that all he can do right now is cover. I was devistated. I asked him to cover at $16 and he waited trying to find me a good exit. I told him to do it asap and the fill was around $18.50 avg.

I had the same disastrous results as him also with Etrader, But it was because they did exactly the opposite, they liquidated my trades when the balance felt to zero then it recovered but without me.

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  #27 (permalink)
 
 
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The Danny Muffarige donation was the best one! DM for president, man of conscience puts his money where his mouth is! haha (If Elizabeth Warren really really won't run, she reminds me of my mammy).

The comments are surprisingly nasty/troll like but I guess that this (very mild) surprise is a testament to effective moderation on this forum.

I shall pay attention and see what is eTrade's response as a news report is waiting for it. I assume they can't close during an overnight gap anyway?.. stop, no emergency customer call (obviously) and no sensible advice when he rings them. Hmmm.. Also him making more mistakes talking about sacrificing a protected 401k and only asking for 5k of 100?

I see a reporter allegedly spoke to him so it may be legit even if a possibly sociology experiment. My girlfriend is somewhat perturbed that I'm spending more than 5 seconds before dismissing this "bit of a first world problem Rory!!" Perhaps ironically she has been doing a PhD on solidarity for 5 years.

If I do donate $5 tomorrow, I have to balance it with $50 to some poor wretch near here who does not have the wherewithal to ask for help. I shall see.

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Hi Mom!
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Why did he only ask for 5k? Something stinks in Denmark...

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Scalpguy View Post
1000 points lower/higher:

can this happen...are there are stats on gap up / gap down 1000pts. have seen extreme readings for flash crash events....but a whats the biggest gap up ?

always in the factor for 500pts if in a long OVN ....but 1000?

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Why did he only ask for 5k? Something stinks in Denmark...

Modesty? He seems to be making it clear that he expects to be handling this mostly on his own.

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Modesty? He seems to be making it clear that he expects to be handling this mostly on his own.

Modesty would be not asking in the first place.

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I feel absolutely nothing for this guy. In fact, I think he's got a lot of nerve begging others for money to help him out of this. Of course he'll spin this as it wasn't his fault, market manipulation, insiders screwed me over, e-trade didn't liquidate me, wah wah wah. Anything to deflect the blame. This is what happens when you don't treat the markets with respect. I think he should sit in the corner by himself and eat his humble pie but that's just my opinion.

Your comments are harsh but I do agree to an extent- he is immediately trying to place blame on his broker and I hate ( as a broker I'm a little biased) people like that. Had he just said "I really screwed up here..." I would have more compassion. It is written in every single brokerage literature in history that a short has " Unlimited Loss Potential" and is the riskiest trade one can make.. They don't say " we can cap you at your account value" because they can't!!! It's unlimited liability... We had some huge margin calls in my old branch back when the Internet bubble burst- well into the 7 figures- one group had to sell thier golf course, vacation homes, boats, planes etc. and the whole town knew about it because of the legal proceedings- now that sucks! This guy will move forward and be fine.

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I can't help feel some sympathy for this chap, the markets can teach harsh lessons. We've all been there before.

I recall one time when i started trading a new equity long only momentum system, the day i started it spit a long on a stock called KZL, the next day they went bust and i had my capital split into 20 parcels, it wasn't chump change either, but i could swing it. Still, it shocked me and i took a while to recover from it. Stops can't save you from bankruptcies.

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paps View Post
can this happen...are there are stats on gap up / gap down 1000pts. have seen extreme readings for flash crash events....but a whats the biggest gap up ?

always in the factor for 500pts if in a long OVN ....but 1000?

Anything can happen! ...and probably will

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Why did he only ask for 5k? Something stinks in Denmark...

just give him a few bucks and stop asking questions


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He says he is a fairly new trader. He shorts 8,400 shares of a high risk stock to get a maximum $2 profit with unlimited risk. But then he says that he will be back trading. This is insanity. He should be on a simulation for a minimum of a year and learn how to trade. He will just lose whatever he trades. His wife is paying for his addiction. I feel sorry for her.

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He says he is a fairly new trader. He shorts 8,400 shares of a high risk stock to get a maximum $2 profit with unlimited risk. But then he says that he will be back trading. This is insanity. He should be on a simulation for a minimum of a year and learn how to trade. He will just lose whatever he trades. His wife is paying for his addiction. I feel sorry for her.


You started your post well with the right advice of looking at risk versus reward. But, Why EVERY single issue which trading related solved by simulation? Offering simulation to such tactics is the same level of insanity. It will do nothing for him.
Greed is Greed. Sooner or later lack of discipline will crawl up on you, and no "Sim" improves such fundamental flaws.

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paps View Post
can this happen...are there are stats on gap up / gap down 1000pts. have seen extreme readings for flash crash events....but a whats the biggest gap up ?

always in the factor for 500pts if in a long OVN ....but 1000?

You are correct there are day limits and circuit break systems but the markets can go to limits every day in a row. Nothing unusual specially in commodities. Pls see attached doc.

Rulebook can be found here at CME

The "thing" in my latest post was that if there is no buyers or sellers you cannot trade and get out of your position.

So it is good advice to know your instruments (read the rule books etc.). Of course you can lower this risk by hedging but nothing is 100% bullet proof.

Attached Files
Register to download File Type: xlsx special-price-fluctuation-limits.xlsx (43.5 KB, 9 views)
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I feel sorry for him. This is a good warning. However, I'm not comfortable with the idea of swing shorting low cap stocks overnight especially with that leverage to account size.

Zerohedge did an article on the catalyst for the big move, suggesting possible manipulation motives also:

"Devastated" Trader Crushed By Soaring Biotech, Starts Online Begging Campaign To Fund $106,000 Margin Call | Zero Hedge

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jodistrict View Post
He says he is a fairly new trader. He shorts 8,400 shares of a high risk stock to get a maximum $2 profit with unlimited risk. But then he says that he will be back trading. This is insanity. He should be on a simulation for a minimum of a year and learn how to trade. He will just lose whatever he trades. His wife is paying for his addiction. I feel sorry for her.

I agree. There is a seed of wisdom in your reply. Of course everything is very personal so it is not a good idea to generalize too much but in my case I lost 20K in my very first "day trading" positions and that put me into 5 year learning curve without any live trading (just planning, reading and training in simulator).

I was lucky enough to understand immediately that I had NO IDEA what I was doing and this saved me from more losses. Today after over 15 000 hours on the markets the situation is a bit different but still I cannot save myself for the very very bad luck.

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jodistrict View Post
He says he is a fairly new trader. He shorts 8,400 shares of a high risk stock to get a maximum $2 profit with unlimited risk. But then he says that he will be back trading. This is insanity. He should be on a simulation for a minimum of a year and learn how to trade. He will just lose whatever he trades. His wife is paying for his addiction. I feel sorry for her.

I agree. There is a seed of wisdom in your reply. Of course everything is very personal so it is not a good idea to generalize too much but in my case I lost 20K in my very first "day trading" positions and that put me into 5 year learning curve without any live trading (just planning, reading and training in simulator).

I was lucky to understand immediately that I had NO IDEA what I was doing. Today after over 15 000 hours on the markets the situation is a bit different but still I cannot save myself from the very, very bad luck.

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Some people are also really weird.



Mike

Agreed..

Contacted him already

As for the guy in the OP - shorting a $2 stock isn't very smart but there's a lot of stuff being sold about trading penny stocks to make a fortune. The trading education industry is completely unregulated and we don't really know if this guy is a victim of that or just a little reckless.

I suspect it's the former. It'd be very interesting to know where he learnt how to trade.

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  #43 (permalink)
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Many people got burned with this one. Our study group traded KBIO on the same day, but it refused to fall, so we were out by late morning. Someone from Kunal's gang reverted long catched a big one.


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jodistrict View Post
He says he is a fairly new trader. He shorts 8,400 shares of a high risk stock to get a maximum $2 profit with unlimited risk. But then he says that he will be back trading. This is insanity. He should be on a simulation for a minimum of a year and learn how to trade. He will just lose whatever he trades. His wife is paying for his addiction. I feel sorry for her.

This is a black swan event. Some people won't have it in 10 years, not in just one year of demo trading. I assume he knew what he was doing and had been lucky before. Stops won't work in after market anyway, but should he kept an eye on it - he could exit - there was no crazy rise, but actually gradually with small pullbacks - i.e. there were some offers to close against. Experience will hardly teach about those events - one who catches it will be out of business, and those still in are probably never had one. Same like with Swiss frank meltdown or before that Fukushima yen meltdown. One must just exercise caution and be aware about the danger. IMO

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That's a tough market lesson indeed. I've made some pretty big mistakes when first trading but nothing on that level.

As you say, leverage (too much) and diversification (too little) are the key lessons there. Also, these types of stocks can be extremely volatile. If only he had decided to buy puts instead or covered his position with some likely cheap call protection...

I assume there was not leverage involved. I also think he did not even invested 100% of his capital in the trade. For 99% of times what he did was almost conservative.

If he put full his 37k in shorts at 2$ and price went to 18$ where e-trade closed him out (it went as high as 25$) - he would lose over 300k. Instead his lost 144k, so he must have put only 16k out of his 37k account in use. This is something truly tremendous move that happened, a real black swan. LTCM was nothing short of geniuses but it fell same way.

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  #46 (permalink)
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This is something truly tremendous move that happened, a real black swan. LTCM was nothing short of geniuses but it fell same way.

Trading biotech stocks one should always be prepared for such an eventuality. Whenever new drugs get approved (or not approved) by the FDA most stocks always tend to always have big runs (or drops). Unfortunately the stock has no options, so he could not have hedged part of his risk with calls. Shorting a biotech stock with no way to effectively limit risk was a pretty risky move.

Another recent example of a truly spectacular move is WTW. These moves happen often enough that I would not really call them black swans. CROX is another scary example of a huge drop overnight which happened a couple of years ago. There are really too many of these type of moves for me to recall, but these type of moves happen more often that they should, and if you don't have hedges, i.e. options, in place then you can get badly hurt.

I have also just looked at KBIO - final traded price is 2.07...man, that must hurt...

Regarding LTCM, I would argue that it was not a black swan that took them out. Rather, they were betting on their arbitrage models working and kept on increasing their bets until the whole thing collapsed. Had their positions been of normal risk, they might have ridden it out and merely suffered a large loss. Instead, they martingaled into the position and it snow-balled from there.

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  #47 (permalink)
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grausch View Post
Trading biotech stocks one should always be prepared for such an eventuality. Whenever new drugs get approved (or not approved) by the FDA most stocks always tend to always have big runs (or drops). Unfortunately the stock has no options, so he could not have hedged part of his risk with calls. Shorting a biotech stock with no way to effectively limit risk was a pretty risky move.

Another recent example of a truly spectacular move is WTW. These moves happen often enough that I would not really call them black swans. CROX is another scary example of a huge drop overnight which happened a couple of years ago. There are really too many of these type of moves for me to recall, but these type of moves happen more often that they should, and if you don't have hedges, i.e. options, in place then you can get badly hurt.

I have also just looked at KBIO - final traded price is 2.07...man, that must hurt...

Regarding LTCM, I would argue that it was not a black swan that took them out. Rather, they were betting on their arbitrage models working and kept on increasing their bets until the whole thing collapsed. Had their positions been of normal risk, they might have ridden it out and merely suffered a large loss. Instead, they martingaled into the position and it snow-balled from there.

Well, this is true, but not 1000% moves overnight. There are examples like CYNK, AVXL etc but these moves took time. This stock is true pump but we all know how bubbles work. I think him trading with E-Trade is a part of the problem as well, as per his description they were quite incompetent, and presumably he could not get out through the platform himself.

Agree about LTCM, what I mean by a black swan is that their spreads went wider than their model could have predicted, a classical fat tale case, and by this time profits were so tiny they did over-leverage beyond any reason.

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xelaar View Post
Well, this is true, but not 1000% moves overnight. There are examples like CYNK, AVXL etc but these moves took time. This stock is true pump but we all know how bubbles work. I think him trading with E-Trade is a part of the problem as well, as per his description they were quite incompetent, and presumably he could not get out through the platform himself.

Agree about LTCM, what I mean by a black swan is that their spreads went wider than their model could have predicted, a classical fat tale case, and by this time profits were so tiny they did over-leverage beyond any reason.

Yes, most of the time these moves take time, but there have been several examples where there have been quite big overnight gaps. WTW gapped up close to 100%, CROX dropped something like 80% overnight (memory sketchy so may be wrong). I have seen others with quite a few being in the biotech space, so one should always tread carefully. To cover these type of risks, most of my positions will be protected using options. If a stock does not have options, then trading a lot smaller may also be an option, i.e. keeping size below 5% of the portfolio. The longer I am in this game, the more risk-averse I become - the number of "black swans" I have seen are already way too much for me to be comfortable with.

According to the book "When Genius Failed", they needed to add additional leverage to reach their target returns of 40% p.a. since others were copying their models. However, they probably would have survived if they did not martingale once the spreads kept on widening. Of course, the more spreads widened the more likely they were to narrow and thus LTCM kept on adding to their positions. Sort of reminds me of a fund manager lamenting after the Enron collapse, "the more it fell the cheaper it became with regards to our valuation, so we naturally bought more" (or something to that effect).

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  #49 (permalink)
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Yes, most of the time these moves take time, but there have been several examples where there have been quite big overnight gaps. WTW gapped up close to 100%, CROX dropped something like 80% overnight (memory sketchy so may be wrong). I have seen others with quite a few being in the biotech space, so one should always tread carefully. To cover these type of risks, most of my positions will be protected using options. If a stock does not have options, then trading a lot smaller may also be an option, i.e. keeping size below 5% of the portfolio. The longer I am in this game, the more risk-averse I become - the number of "black swans" I have seen are already way too much for me to be comfortable with.

According to the book "When Genius Failed", they needed to add additional leverage to reach their target returns of 40% p.a. since others were copying their models. However, they probably would have survived if they did not martingale once the spreads kept on widening. Of course, the more spreads widened the more likely they were to narrow and thus LTCM kept on adding to their positions. Sort of reminds me of a fund manager lamenting after the Enron collapse, "the more it fell the cheaper it became with regards to our valuation, so we naturally bought more" (or something to that effect).

Indeed I agree with your, but this is the whole business model, the whole idea of this sort of trading - short the hell out of pumps that seem to start cracking. My point simply is - nobody could have expected it to jump 10 times, nor there are any precedence, 100-200% yes, but not 1000%. What I am saying - no experience nor demo trading would have prepared any trader for that situation, only his own sanity and understanding the nature of the game. He would still lose very big, just not that big. It happens. And a chance of it happening to you is far less (IMO) than being killed by a car. We take care when we cross the street and improve our chances, but not to 0 anyway.

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I cant find 1 share of this stock to short. There is none to borrow anywhere. I cant understand how Etrade let him short 9000 shares unless Etrade took the other side of his trade. This whole story sounds bogus to me.

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Big Mike View Post
Imagine losing every dollar in your current account right now, in 2 hours, while you were away at a meeting. Then imagine tripling that loss and having to liquidate your retirement accounts for you and your wife.

I feel for him, I really do.

Mike

Does anyone know if this happen overnight? If that is the case his Stop (if he had one) would not have been triggered, right? That is what I don't like about exchanges/instruments not working 24 hrs.

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ElChacal View Post
Does anyone know if this happen overnight? If that is the case his Stop (if he had one) would not have been triggered, right? That is what I don't like about exchanges/instruments not working 24 hrs.

Of course it can.

And 24 hours solves nothing. Stocks are halted intraday all the time for news releases.

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Of course it can.

And 24 hours solves nothing. Stocks are halted intraday all the time for news releases.

Mike

Well what I really meant is that on ES for instance you can place a stop to trigger after RTH and sleep well at night. With other instruments like commodities (NYBOT CBOT) you get the gaps the next morning and there is really nothing you can do about it.

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I cant find 1 share of this stock to short. There is none to borrow anywhere. I cant understand how Etrade let him short 9000 shares unless Etrade took the other side of his trade. This whole story sounds bogus to me.

Seems like that took that page off line. https://www.gofundme.com/jwctrek

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Well what I really meant is that on ES for instance you can place a stop to trigger after RTH and sleep well at night. With other instruments like commodities (NYBOT CBOT) you get the gaps the next morning and there is really nothing you can do about it.

Index futures are far less likely to experience the same type of event because they are made up of so many underlying equities.

Let's say that tomorrow a nuclear bomb goes off in New York. Then yes, there will be a problem. But the market will be halted and untradeable anyway, plus everyone will have bigger problems.

The solution is this: a) keep the minimum amount necessary to do business in your broker account, b) do not reinvest all your proceeds into the market, c) diversify, d) diversify, e) diversify.

Owning real estate around the globe is probably one of the simplest ways to diversify, in my opinion.

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Owning real estate around the globe is probably one of the simplest ways to diversify, in my opinion.

Tell me about it, I'll need to work the next 30 years to pay my mortgage. Just closed on the house a month ago.

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Big Mike View Post
I do admire the guy for saying he will pay his broker back. Legally, he's on the hook. I don't know what his financial situation is, or how old he is, but 100k is not chump change. People have filed bankruptcy for much less.

Mike

He is 32 yrs old.......

Ron

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  #58 (permalink)
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ElChacal View Post
Tell me about it, I'll need to work the next 30 years to pay my mortgage. Just closed on the house a month ago.

Do your homework on a 15-year vs 30-year. If you can't afford the payments on a 15 year then I suspect you can't afford the house. And the cost savings of 15 vs 30 is substantial over the life of the loan, but of course you have to look at tax deductions as well for your specific situation.

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  #59 (permalink)
the coin hunter
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mattz View Post
Seems like that took that page off line. https://www.gofundme.com/jwctrek

Matt

yes, he said 5K goal reached he will update what he does with the money later.

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  #60 (permalink)
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cory View Post
yes, he said 5K goal reached he will update what he does with the money later.

Funded campaigns don't get deleted. The fact that it was deleted indicates a different story.

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  #61 (permalink)
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Big Mike View Post
Of course it can.

And 24 hours solves nothing. Stocks are halted intraday all the time for news releases.

Mike

Mike, there was no true gap per se, only in perspective of RTH. If someone trades volatile stuff like that especially short, one must have after-hours trading platform access. It was certainly possible to exit should he kept monitoring his position. But I also heard shorts were unobtainable (at Wedbush certainly there were none), it's a wonder such a fine establishment like E-trade had them and plentiful..


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xelaar View Post


It would seem like lack of a Stop order. Sad anyway.

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  #63 (permalink)
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xelaar View Post
Mike, there was no true gap per se, only in perspective of RTH.

You are right, I misunderstood and thought it was after the AH session was over.

I checked my data, here it is grouped by last price, first 100 price changes after 4pm

 
Code
MariaDB [ticks]> select * from KBIO where Date between '2015-11-18 16:00:00' and '2015-11-19' group by Last limit 100;
+-------------------------+---------+----------+---------+---------+---------+--------------+-------------------+-----------------+
| Date                    | Last    | LastSize | Bid     | Ask     | TickID  | BasisForLast | TradeMarketCenter | TradeConditions |
+-------------------------+---------+----------+---------+---------+---------+--------------+-------------------+-----------------+
| 2015-11-18 16:09:41.605 | 2.00000 |      100 | 1.97000 | 2.00000 | 2649070 | E            |                11 | 1747            |
| 2015-11-18 16:00:00.051 | 2.01000 |        0 | 2.00000 | 2.01000 | 2645080 | O            |                11 | 2E              |
| 2015-11-18 16:00:00.173 | 2.07000 |     6504 | 2.00000 | 2.01000 | 2645658 | C            |                 5 | 4042            |
| 2015-11-18 16:10:10.150 | 2.09000 |      100 | 2.01000 | 2.09000 | 2649193 | E            |                11 | 17              |
| 2015-11-18 16:10:22.749 | 2.11000 |    10000 | 2.09000 | 2.11000 | 2649251 | E            |                11 | 17              |
| 2015-11-18 16:10:57.618 | 2.20000 |      200 | 2.20000 | 2.27000 | 2649533 | E            |                11 | 173D            |
| 2015-11-18 16:10:23.508 | 2.24000 |        1 | 2.09000 | 2.27000 | 2649269 | O            |                 5 | 873D17          |
| 2015-11-18 16:10:34.636 | 2.25000 |      500 | 2.11000 | 2.27000 | 2649360 | E            |                25 | 173D            |
| 2015-11-18 16:10:23.470 | 2.26000 |      100 | 2.10000 | 2.26000 | 2649252 | E            |                26 | 17              |
| 2015-11-18 16:10:23.605 | 2.27000 |      200 | 2.09000 | 2.40000 | 2649277 | E            |                 5 | 173D            |
| 2015-11-18 16:11:21.196 | 2.39000 |      100 | 2.21000 | 2.39000 | 2649656 | E            |                26 | 17              |
| 2015-11-18 16:11:50.100 | 2.40000 |      800 | 2.25000 | 2.44000 | 2649783 | E            |                11 | 17              |
| 2015-11-18 16:12:11.677 | 2.44000 |     1000 | 2.40000 | 2.44000 | 2649815 | E            |                19 | 17              |
| 2015-11-18 16:12:54.915 | 2.58000 |      200 | 2.35000 | 2.75000 | 2650400 | E            |                 5 | 17              |
| 2015-11-18 16:13:57.086 | 2.70000 |     1000 | 2.65000 | 2.79000 | 2651006 | E            |                11 | 17              |
| 2015-11-18 16:12:56.801 | 2.75000 |      100 | 2.70000 | 2.75000 | 2650454 | E            |                11 | 17              |
| 2015-11-18 16:12:57.182 | 2.76000 |      300 | 2.80000 | 3.50000 | 2650456 | E            |                11 | 17              |
| 2015-11-18 16:13:57.729 | 2.79000 |      150 | 2.65000 | 2.79000 | 2651009 | E            |                19 | 17              |
| 2015-11-18 16:13:52.628 | 2.86000 |      100 | 2.70000 | 2.86000 | 2650991 | E            |                 5 | 17              |
| 2015-11-18 16:14:02.683 | 2.87000 |      100 | 2.87000 | 2.89000 | 2651021 | E            |                 5 | 17              |
| 2015-11-18 16:14:05.637 | 2.89000 |      100 | 2.88000 | 2.89000 | 2651063 | E            |                25 | 17              |
| 2015-11-18 16:14:10.013 | 2.90000 |      200 | 2.89000 | 2.90000 | 2651101 | E            |                 5 | 173D            |
| 2015-11-18 16:14:12.173 | 2.92000 |      200 | 2.92000 | 2.99000 | 2651125 | E            |                 5 | 17              |
| 2015-11-18 16:14:12.177 | 2.97000 |      500 | 2.92000 | 2.99000 | 2651126 | E            |                 5 | 17              |
| 2015-11-18 16:14:12.177 | 2.98000 |      100 | 2.92000 | 2.99000 | 2651127 | E            |                 5 | 17              |
| 2015-11-18 16:14:12.185 | 2.99000 |      200 | 2.92000 | 2.99000 | 2651131 | E            |                26 | 17              |
| 2015-11-18 16:13:15.479 | 3.00000 |      500 | 2.75000 | 2.98000 | 2650573 | E            |                11 | 173D            |
| 2015-11-18 16:15:51.652 | 3.09000 |     1850 | 3.08000 | 3.25000 | 2652045 | E            |                11 | 17              |
| 2015-11-18 16:14:52.395 | 3.10000 |     3000 | 3.00000 | 3.10000 | 2651558 | E            |                26 | 17              |
| 2015-11-18 16:17:34.410 | 3.11000 |      200 | 3.10000 | 3.19000 | 2652433 | E            |                 5 | 173D            |
| 2015-11-18 16:18:44.450 | 3.12000 |      100 | 3.11000 | 3.19000 | 2652663 | E            |                26 | 17              |
| 2015-11-18 16:19:13.620 | 3.15000 |     1000 | 3.15000 | 3.21000 | 2652759 | E            |                 5 | 173D            |
| 2015-11-18 16:15:51.649 | 3.17000 |      300 | 3.08000 | 3.25000 | 2652043 | E            |                26 | 17              |
| 2015-11-18 16:15:51.652 | 3.18000 |     1000 | 3.08000 | 3.25000 | 2652046 | E            |                11 | 17              |
| 2015-11-18 16:15:51.654 | 3.19000 |      500 | 3.08000 | 3.25000 | 2652047 | E            |                25 | 17              |
| 2015-11-18 16:16:12.221 | 3.20000 |      400 | 3.05000 | 3.24000 | 2652126 | E            |                 5 | 17              |
| 2015-11-18 16:16:33.869 | 3.21000 |      100 | 3.20000 | 3.21000 | 2652197 | E            |                 5 | 17              |
| 2015-11-18 16:15:11.431 | 3.23000 |      200 | 3.10000 | 3.25000 | 2651774 | E            |                26 | 173D            |
| 2015-11-18 16:16:13.465 | 3.24000 |      100 | 3.20000 | 3.24000 | 2652129 | E            |                11 | 17              |
| 2015-11-18 16:15:11.431 | 3.25000 |      550 | 3.10000 | 3.25000 | 2651775 | E            |                26 | 173D            |
| 2015-11-18 16:16:40.911 | 3.26000 |     1000 | 3.25000 | 3.26000 | 2652238 | E            |                11 | 17              |
| 2015-11-18 16:16:13.467 | 3.29000 |      200 | 3.20000 | 3.24000 | 2652131 | E            |                11 | 17              |
| 2015-11-18 16:16:40.933 | 3.35000 |       25 | 3.25000 | 3.38000 | 2652239 | O            |                 5 | 873D17          |
| 2015-11-18 16:19:46.311 | 3.36000 |      200 | 3.35000 | 3.50000 | 2652886 | E            |                11 | 17              |
| 2015-11-18 16:14:15.390 | 3.38000 |      100 | 3.00000 | 3.39000 | 2651148 | E            |                11 | 17              |
| 2015-11-18 16:16:20.334 | 3.39000 |      500 | 3.20000 | 3.39000 | 2652153 | E            |                25 | 173D            |
| 2015-11-18 16:19:37.745 | 3.40000 |      100 | 3.35000 | 3.44000 | 2652855 | E            |                11 | 17              |
| 2015-11-18 16:19:46.316 | 3.44000 |      500 | 3.35000 | 3.50000 | 2652888 | E            |                25 | 17              |
| 2015-11-18 16:19:46.318 | 3.45000 |      500 | 3.35000 | 3.50000 | 2652890 | E            |                25 | 17              |
| 2015-11-18 16:19:46.320 | 3.50000 |     1000 | 3.35000 | 3.50000 | 2652891 | E            |                26 | 17              |
| 2015-11-18 16:20:01.642 | 3.60000 |     1000 | 3.60000 | 3.69000 | 2652924 | E            |                26 | 17              |
| 2015-11-18 16:20:04.954 | 3.61000 |      500 | 3.60000 | 3.61000 | 2652927 | E            |                 5 | 17              |
| 2015-11-18 16:20:18.944 | 3.65000 |       62 | 3.65000 | 3.75000 | 2652961 | O            |                11 | 8717            |
| 2015-11-18 16:20:13.439 | 3.70000 |      100 | 3.63000 | 3.70000 | 2652946 | E            |                11 | 17              |
| 2015-11-18 16:20:16.146 | 3.74000 |      300 | 3.65000 | 3.74000 | 2652955 | E            |                25 | 17              |
| 2015-11-18 16:20:18.893 | 3.75000 |      200 | 3.65000 | 3.75000 | 2652960 | E            |                11 | 17              |
| 2015-11-18 16:20:23.997 | 3.77000 |      100 | 3.76000 | 3.77000 | 2652986 | E            |                 5 | 173D            |
| 2015-11-18 16:20:37.383 | 3.78000 |      100 | 3.77000 | 3.78000 | 2653015 | E            |                 5 | 173D            |
| 2015-11-18 16:20:32.981 | 3.79000 |      100 | 3.77000 | 3.84000 | 2653010 | E            |                 5 | 173D            |
| 2015-11-18 16:20:27.880 | 3.84000 |      150 | 3.75000 | 3.84000 | 2652996 | E            |                25 | 173D            |
| 2015-11-18 16:20:21.969 | 3.89000 |      500 | 3.75000 | 3.94000 | 2652985 | E            |                25 | 17              |
| 2015-11-18 16:20:38.567 | 3.91000 |      100 | 3.84000 | 3.94000 | 2653021 | E            |                 5 | 173D            |
| 2015-11-18 16:20:24.899 | 3.93000 |      100 | 3.76000 | 3.93000 | 2652988 | E            |                11 | 17              |
| 2015-11-18 16:20:38.729 | 3.94000 |      500 | 3.85000 | 3.99000 | 2653022 | E            |                25 | 17              |
| 2015-11-18 16:20:43.591 | 3.98000 |      200 | 3.88000 | 3.99000 | 2653047 | E            |                26 | 173D            |
| 2015-11-18 16:20:38.875 | 3.99000 |      100 | 3.85000 | 3.99000 | 2653024 | E            |                25 | 173D            |
| 2015-11-18 16:20:43.614 | 4.00000 |      200 | 3.88000 | 4.00000 | 2653060 | E            |                26 | 173D            |
| 2015-11-18 16:20:47.469 | 4.01000 |      100 | 4.01000 | 4.16000 | 2653073 | E            |                 5 | 17              |
| 2015-11-18 16:20:47.465 | 4.02000 |      400 | 4.01000 | 4.16000 | 2653072 | E            |                11 | 17              |
| 2015-11-18 16:20:55.278 | 4.05000 |       25 | 4.05000 | 4.25000 | 2653110 | O            |                11 | 873D17          |
| 2015-11-18 16:20:49.982 | 4.14000 |      100 | 4.05000 | 4.16000 | 2653074 | E            |                11 | 17              |
| 2015-11-18 16:20:55.274 | 4.15000 |       75 | 4.05000 | 4.25000 | 2653109 | O            |                11 | 8717            |
| 2015-11-18 16:20:49.982 | 4.16000 |      100 | 4.05000 | 4.16000 | 2653075 | E            |                11 | 17              |
| 2015-11-18 16:20:51.651 | 4.17000 |      200 | 4.16000 | 4.17000 | 2653083 | E            |                25 | 173D            |
| 2015-11-18 16:20:50.945 | 4.19000 |      100 | 4.05000 | 4.19000 | 2653078 | E            |                 5 | 173D            |
| 2015-11-18 16:20:43.977 | 4.20000 |      100 | 4.00000 | 4.20000 | 2653062 | E            |                11 | 17              |
| 2015-11-18 16:21:28.502 | 4.21000 |      300 | 4.20000 | 4.21000 | 2653328 | E            |                11 | 17              |
| 2015-11-18 16:21:31.790 | 4.22000 |      100 | 4.21000 | 4.22000 | 2653349 | E            |                25 | 173D            |
| 2015-11-18 16:22:14.758 | 4.23000 |       50 | 4.22000 | 4.30000 | 2653598 | O            |                11 | 8717            |
| 2015-11-18 16:20:53.192 | 4.24000 |      100 | 4.16000 | 4.19000 | 2653095 | E            |                25 | 173D            |
| 2015-11-18 16:20:53.720 | 4.25000 |      500 | 4.16000 | 4.19000 | 2653102 | E            |                26 | 173D            |
| 2015-11-18 16:21:31.621 | 4.25500 |      100 | 4.21000 | 4.22000 | 2653347 | E            |                11 | 17              |
| 2015-11-18 16:21:31.622 | 4.26000 |      100 | 4.21000 | 4.22000 | 2653348 | E            |                 5 | 17              |
| 2015-11-18 16:21:47.243 | 4.27000 |       50 | 4.24000 | 4.31000 | 2653417 | O            |                11 | 8717            |
| 2015-11-18 16:21:34.337 | 4.28000 |      100 | 4.21000 | 4.29000 | 2653357 | E            |                 5 | 173D            |
| 2015-11-18 16:21:34.347 | 4.29000 |      300 | 4.21000 | 4.29000 | 2653358 | E            |                11 | 17              |
| 2015-11-18 16:21:33.055 | 4.30000 |      200 | 4.29000 | 4.30000 | 2653352 | E            |                 5 | 173D            |
| 2015-11-18 16:21:27.666 | 4.31000 |      500 | 4.30000 | 4.31000 | 2653312 | E            |                11 | 17              |
| 2015-11-18 16:21:40.859 | 4.32000 |      100 | 4.31000 | 4.32000 | 2653384 | E            |                11 | 17              |
| 2015-11-18 16:21:40.859 | 4.33000 |      100 | 4.31000 | 4.32000 | 2653383 | E            |                11 | 17              |
| 2015-11-18 16:21:51.434 | 4.34000 |      100 | 4.32000 | 4.33000 | 2653441 | E            |                25 | 17              |
| 2015-11-18 16:21:59.618 | 4.35000 |      200 | 4.32000 | 4.37000 | 2653502 | E            |                 5 | 173D            |
| 2015-11-18 16:21:25.943 | 4.36000 |      100 | 4.52000 | 4.53000 | 2653309 | E            |                 5 | 17              |
| 2015-11-18 16:21:58.264 | 4.37000 |     1000 | 4.36000 | 4.40000 | 2653483 | E            |                 5 | 17              |
| 2015-11-18 16:23:06.885 | 4.38000 |      200 | 4.32000 | 4.40000 | 2653969 | E            |                 5 | 173D            |
| 2015-11-18 16:20:56.971 | 4.39000 |      500 | 4.04000 | 4.41000 | 2653120 | E            |                25 | 17              |
| 2015-11-18 16:21:55.967 | 4.40000 |      100 | 4.38000 | 4.39000 | 2653476 | E            |                12 | 17              |
| 2015-11-18 16:20:56.973 | 4.41000 |      100 | 4.04000 | 4.41000 | 2653121 | E            |                11 | 17              |
| 2015-11-18 16:20:56.976 | 4.44000 |      500 | 4.50000 | 4.55000 | 2653123 | E            |                25 | 17              |
| 2015-11-18 16:23:14.153 | 4.46000 |      300 | 4.40000 | 4.47000 | 2654033 | E            |                 5 | 173D            |
+-------------------------+---------+----------+---------+---------+---------+--------------+-------------------+-----------------+
100 rows in set (0.00 sec)
So it seems he had a) no stop and/or b) didn't specify his stop could be filled on AH exchanges

Mike

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  #64 (permalink)
Market Chamois
Chicago, IL
 
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Unfortunately there is a great deal to learn regarding trading and this poor guy has now experienced the immense impact of his want for knowledge in as real a way as possible. I feel extremely grateful to have a small measure of education in this field so I am able to protect myself from myself. As I see it: risk management, position sizing per account size, choosing tradable instruments with long term research and relative stability in mind, comparatively small consistent trades set up opportunities over the big picture which in turn enable outsized gains through position management, trading for home runs in and of itself is counterproductive… are among some of the gems I have unearthed along my journey.
Ron

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  #65 (permalink)
Minneapolis+ MN / USA
 
 
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Of all days to log in to see whats up. I check this site out maybe 2 times a yr. This guy just bought himself a Harvard education. Never ever hold anything over night. But I'll wager he wont learn this simple rule until he wipes his account out again. What the heck was he trading anyway? This is a business, not Las Vegas. I suggest he never trade again and continue doing what ever he was doing to have $130,000 at age 32.

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  #66 (permalink)
NY, USA
 
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I am confused. Shouldn't etrade liquidate his shorts before any margin call hits him?

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  #67 (permalink)
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jz166 View Post
I am confused. Shouldn't etrade liquidate his shorts before any margin call hits him?

Nope- that's what the margin call does- tells you to bring more money to stay in the game

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  #68 (permalink)
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shanmugs View Post
I cant find 1 share of this stock to short. There is none to borrow anywhere. I cant understand how Etrade let him short 9000 shares unless Etrade took the other side of his trade. This whole story sounds bogus to me.

I came here to post the same thing- its been in my mind all day. No BD I have worked for would ever allow one to short penny stocks. I was wondering if the world of $2 online BDs had got into this game- and somehow had these to loan- Sompin' fishey going on here...

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  #69 (permalink)
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Sounds like he was following Timothy Sykes with shorting the low cost stock through Etrade. He's all about shorting penny stocks.

I feel for the guy, but don't go online and expect others to pay for your stupid mistake.

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  #70 (permalink)
prague, czech republic
 
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emini2000 View Post
Sounds like he was following Timothy Sykes with shorting the low cost stock through Etrade. He's all about shorting penny stocks.

I feel for the guy, but don't go online and expect others to pay for your stupid mistake.

From what I read in Sykes book he lived by the screen including ah and bh. This guy put a short and went to a bar. The problem was not the low price but just 4M shares float.

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  #71 (permalink)
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I wouldn't blame Sykes for this. He says to stay far away from biotech for this exact reason.

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  #72 (permalink)
Market Wizard
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jz166 View Post
I am confused. Shouldn't etrade liquidate his shorts before any margin call hits him?


E-Trade would have probably liquidated a stock if they had the chance to do it.

However, when the trading of a stock is halted because of major announcement, the broker cannot liquidate it.

Once the shorted stock reopens with a gap up, the damage to the account is already done, and it is too late to liquidate the position.

The simple problem here is that the trader needs to understand that short selling stocks can be extremely dangerous.

-> a single stock can easily make moves of 30% or 50%
-> the markets cannot be traded 24/24
-> sometimes too many traders have shorted the same stock and there can be a short squeeze on top of that

When you trade futures there are not so many black swans. An index such as ES does not jump up 30% overnight, and also the exchange is open overnight, and the broker can indeed liquidate the position, before the account is depleted.

When you short crude oil, this is not more dangerous than going long - if you leave your position a few days prior to expiry of the contract. When you short a stock index, this is pretty safe to do. I have never seen stock indices gap to the upside by 10% or more.

However, when you short a stock, there is illimited risk. During the takeover battle with Porsche, Volkswagen stock moved up from € 150 to € 1,000 and Volkswagen became the most valuable company in the world for a few days. A few hedge funds who had shorted the stock had severe problems, as the freefloat of the stock is limited.

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  #73 (permalink)
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Fat Tails View Post
E-Trade would have probably liquidated a stock if they had the chance to do it.

However, when the trading of a stock is halted because of major announcement, the broker cannot liquidate it.

Once the shorted stock reopens with a gap up, the damage to the account is already done, and it is too late to liquidate the position.

The simple problem here is that the trader needs to understand that short selling stocks can be extremely dangerous.

-> a single stock can easily make moves of 30% or 50%
-> the markets cannot be traded 24/24
-> sometimes too many traders have shorted the same stock and there can be a short squeeze on top of that

When you trade futures there are not so many black swans. An index such as ES does not jump up 30% overnight, and also the exchange is open overnight, and the broker can indeed liquidate the position, before the account is depleted.

When you short crude oil, this is not more dangerous than going long - if you leave your position a few days prior to expiry of the contract. When you short a stock index, this is pretty safe to do. I have never seen stock indices gap to the upside by 10% or more.

However, when you short a stock, there is illimited risk. During the takeover battle with Porsche, Volkswagen stock moved up from € 150 to € 1,000 and Volkswagen became the most valuable company in the world for a few days. A few hedge funds who had shorted the stock had severe problems, as the freefloat of the stock is limited.

It was not halted, according to this guy broker wasn't even aware of the margin call, being so fast and after hours event. I would argue that futures are less dangerous if you account for the fact that generally much smaller typical volatility will require using high leverage to get comparable result with stocks as biotech. And while shorts are not more dangerous than longs in futures it is because longs are as dangerous as shorts in a highly leveraged position.

Yeah, he sold stock short and it went up 1000% while it could not go down more than 100% in case of long. But if you buy or sell futures and lever 100 to one you just need 1% move to wipe you out be it short or long.

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  #74 (permalink)
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Ultimately it is not a market fail, just a case of greed and inadequate capital protection. He clearly was hoping for a stock to lose maybe 50%, used half of his capital i.e. delevered 0.5 to one, and was hoping to get 25% gain on trade. If he would plan to get a conservative 2.5% gain he would delevered 0.05 to one and invest only 1600 into position not 16k. Then he would lose only 13k in the same circumstances

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xelaar View Post
It was not halted, according to this guy broker wasn't even aware of the margin call, being so fast and after hours event. I would argue that futures are less dangerous if you account for the fact that generally much smaller typical volatility will require using high leverage to get comparable result with stocks as biotech. And while shorts are not more dangerous than longs in futures it is because longs are as dangerous as shorts in a highly leveraged position.

Yeah, he sold stock short and it went up 1000% while it could not go down more than 100% in case of long. But if you buy or sell futures and lever 100 to one you just need 1% move to wipe you out be it short or long.

I agree that futures require appropriate risk management as the position is always leveraged. However, you cannot leverage genuine futures 1:100 as the maximum leverage is limited my the margin requirements set both by the exchange and your broker.

The case of a leverage of 1:100 rather applies to FOREX retail brokers outside the US, as leverage in the US is limited to 1:50.

When I mentioned that shorting stock is dangerous, I was talking about black swans. A takeover announcement, a new drug or a short squeeze can move a small stock up by a few 100%. Someone shorting stock needs to take into account that risk by limiting exposure in such a way that a black swan event cannot kill the account.

When shorting an index future the black swan is a sudden move up of 4%. When shorting a stock, the black swan is a sudden move up of 400%. Therefore you might have a higher exposure to black swan risk when shorting a small stock compared to short futures position.

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...
An index such as ES does not jump up 30% overnight, and also the exchange is open overnight, and the broker can indeed liquidate the position, before the account is depleted.
...

For give me but you are dangerously wrong.

It is not a question is there limits by the exchange or circuit breakers or your hope ES will not jump overnight. It is a question of buyers and sellers. The question is anybody willing to sell or buy that you can go out of your position or your broker can liquidate it.

If sellers will disappear it is nobody's fault and it is a situation what cannot be fixed in any way than hedging if you are lucky enough to find a suitable instrument which is tradeable.

btw. This was exactly what happened for example on the black monday morning in 1987 in S&P 500 index futures.

In index futures you can loose easily more than your account in both ways long or short !

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For give me but you are dangerously wrong.

It is not a question is there limits by the exchange or circuit breakers or your hope ES will not jump overnight. It is a question of buyers and sellers. The question is anybody willing to sell or buy that you can go out of your position or your broker can liquidate it.

If sellers will disappear it is nobody's fault and it is a situation what cannot be fixed in any way than hedging if you are lucky enough to find a suitable instrument which is tradeable.

btw. This was exactly what happened for example on the black monday morning in 1987 in S&P 500 index futures.

In index futures you can loose easily more than your account in both ways long or short !


Thank you for taking a different view. That allows for discussing the item.

What I wanted to say is that the most dangerous situation comes up, when there is a large move while the exchange is closed or halted. In this case a stop loss cannot save you, because it cannot be executed.

When there is a takeover announcement for a promising stock, and you hold a short position of that stock, you are trapped. Your may easily find yourself with losses of 100% of the principal or more. Of course, if you hold a highly leveraged position in futures, there is a risk as well. But, in general, the probability that your stop loss will be executed is better for futures contracts.

-> futures have longer market hours
-> the liquidity of the futures is better (in terms of value)
-> executions are better in case of a major problem

Let us have a look at the flash crash (the last black swan):

-> a drop in Asian markets caused a first decline of 7% prior to the regular open, with a futures positions and a stop loss you could have already exited overnight
-> the futures market was liquid enough prior to the open
-> for NYSE listed stocks there were no quotes for several minutes
-> at the regular open already 765 stocks of the Russell 3000 were down over 10%
-> some stocks lost 60% of their value, because there were no buyers
-> NYSE and NASDAQ market data was delayed by 15 minutes, because the computer systems would not process the trades
-> CME was moe or less up-to-date (see NANEX reports)

Summarizing: Your stop loss would have been certainly honored at CME futures, which means that you would have been able to control your risk all the time, including the early period when the Asian markets were open. Stocks were not tradeable during the Asian market hours, did not produce any quotes at the open, suffered from a sudden loss of 10% and more. During the remainder of the session market data for stocks was delayed by 15 minutes. How would you have managed your risk under those conditions? Even diversifiying your stock portfolio would not have helped you.

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  #78 (permalink)
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I agree that futures require appropriate risk management as the position is always leveraged. However, you cannot leverage genuine futures 1:100 as the maximum leverage is limited my the margin requirements set both by the exchange and your broker.

The case of a leverage of 1:100 rather applies to FOREX retail brokers outside the US, as leverage in the US is limited to 1:50.

When I mentioned that shorting stock is dangerous, I was talking about black swans. A takeover announcement, a new drug or a short squeeze can move a small stock up by a few 100%. Someone shorting stock needs to take into account that risk by limiting exposure in such a way that a black swan event cannot kill the account.

When shorting an index future the black swan is a sudden move up of 4%. When shorting a stock, the black swan is a sudden move up of 400%. Therefore you might have a higher exposure to black swan risk when shorting a small stock compared to short futures position.

I beg to differ - 400 usd daytrading margin for ES is a regular thing among discount brokers, that is higher that 100 to 1. 1% move withing a minute or two even in ES during a regular session - happens, just recall August. While moves like we had in KBIO in just few overnight hours are unprecedented.

If we look for FDAX futures - I witnessed over 5% move in just one tick prior to ECB announcement. Market was halted for 15 minutes. Some transaction were cancelled some not. Again discount brokers like Ninja or AMP gladly give you 2500 usd day trading margin while notional value of the contract is 11000 x 25 = 265 000 euro. Fully levered it would have you had with 400% margin call after your equity expired.

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Survival of the fittest. Brokers like that take on extra risk in exchange for attracting more accounts.

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xelaar View Post
I beg to differ - 400 usd daytrading margin for ES is a regular thing among discount brokers, that is higher that 100 to 1. 1% move withing a minute or two even in ES during a regular session - happens, just recall August. While moves like we had in KBIO in just few overnight hours are unprecedented.

If we look for FDAX futures - I witnessed over 5% move in just one tick prior to ECB announcement. Market was halted for 15 minutes. Some transaction were cancelled some not. Again discount brokers like Ninja or AMP gladly give you 2500 usd day trading margin while notional value of the contract is 11000 x 25 = 265 000 euro. Fully levered it would have you had with 400% margin call after your equity expired.

I agree with you. Super discount brokers are playing a dangerous game to acquire new customers. My broker requires an intraday margin of $ 2875 and an overnight margin of $ 5750 per contract, well above the $ 400 daytrading margin that you mentioned. I am not sensitive to the margin offers of discount brokers, because they are in contradiction with my own principles of leverage and money management.

But it seems that brokers offer those ridiculuos margins because they believe that it is easy to cover a futures position in time and limit their own risk.

Obviously, I was not comparing over-leveraged futures positions to stock positions.

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Big Mike View Post
Survival of the fittest. Brokers like that take on extra risk in exchange for attracting more accounts.

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I personally like that option just like in forex, because just like you argue yourself it allows to keep a minimum amount of money on account and reduce counterparty risk as much as possible. But to a greedy and dumb it offers a way to kill themselves. Just like a rope and some soap.

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I'm not sure who's more negligent here, the idiot who placed the trade, or Etrade for offering shorts.

Hard to imagine a broker with good risk models offering shorts on a micro cap biotech.

"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
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xelaar View Post
I personally like that option just like in forex, because just like you argue yourself it allows to keep a minimum amount of money on account and reduce counterparty risk as much as possible. But to a greedy and dumb it offers a way to kill themselves. Just like a rope and some soap.

IMO well said !

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Fat Tails View Post
...
Summarizing: Your stop loss would have been certainly honored at CME futures, which means that you would have been able to control your risk all the time, including the early period when the Asian markets were open. Stocks were not tradeable during the Asian market hours, did not produce any quotes at the open, suffered from a sudden loss of 10% and more. During the remainder of the session market data for stocks was delayed by 15 minutes. How would you have managed your risk under those conditions? Even diversifiying your stock portfolio would not have helped you.

Yes that was the point. If there is no ask offers how do you sell. Stops cannot work. What I learned about the flash crash was it was more question about the delays not missing offers which lead to a situations without trading... I may be wrong...

BUT of course I understand and agree with you the liquid stock index futures are MORE safe than pure stocks.

What comes to managing risk is what I said earlier that there is NO other way to fix than try to hedge IF you are lucky to find something tradeable. The interesting question is for example that what are our options for a hedge in the case of invalid ES futures ? Should discussed in another thread I think (OT here).

Summasummarum:
Every market and instrument can go invalid and you can be totally trapped if there is no willing to buy or sell. During that time the markets can prepare for a big gap and when it again resumes you may be in deep trouble.

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  #85 (permalink)
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Part of risk management is to set up a company to protect yourself (which is what I've done) in case the market sucker punches you right in the ****.

It may sound dirty but as any businessman will tell you, it is essential because bad deals happen.

Pretty expensive lesson but he probably could have avoided this by learning about risk management before he decided to short a low float stock.

I bet he has the full collection of Tim Sykes videos.

Come to Australia, where FX leverage up to 1:500 is legal.

CFDs are legal too, up to 1:20

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Itchymoku View Post
just give him a few bucks and stop asking questions


lol you all are suckers.

Someone else will probably set up a gofundme because they donated to this guy and it was all a scam so we need to pay back the people for getting scammed.

How many thousands of people lost their life savings in ponzi schemes the past decade trying to make what they thought were safe investments? I feel bad for them,
Biotech speculator? Fuck no.

The obvious scam here is you collect 20k and have fun spending it on nonsense. Then file bankruptcy to settle the actual debt.

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Part of risk management is to set up a company to protect yourself (which is what I've done) in case the market sucker punches you right in the ****.

It may sound dirty but as any businessman will tell you, it is essential because bad deals happen.

In my experience US brokerage companies require a personal guarantee if trading out of a company, which negates a lot of the protection the company gives you.

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Big Mike View Post
Imagine losing every dollar in your current account right now, in 2 hours, while you were away at a meeting. Then imagine tripling that loss and having to liquidate your retirement accounts for you and your wife.

I feel for him, I really do.

Mike


No feelings in my book. This guy shorted a $2 stock (could you even short a $2 stock in E-trade, and if so get a hold of that much?) he clearly does not know how to figure out his risk management when shorting so much of a $2 stock. He should have never shorted so much on a penny stock and now begging for money. He should man up and find a part time job, McDonalds I am sure will hire him. I do not think it would take more than 4 years of working part time to cover the bill. He is a joke.

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I'm not sure who's more negligent here, the idiot who placed the trade, or Etrade for offering shorts.

Hard to imagine a broker with good risk models offering shorts on a micro cap biotech.

They sure can. But one thing we don't know is who was on the other side of the trade. It could be Etrade themselves.

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As a broker, I would say this: We expect the trader to use some common sense when it comes to risk, and follow through when it comes to risk management. Specifically in futures, if you use high leverage, short options, etc. then pay attention and realize that the "Black Swan" will happen to you. It's not if, it's when. Your attention to details combined with the quality of your risk management, and your risk appetite will determine the impact on your account.

Do not under any circumstances leave positions unattended.
Do not underestimate the leverage your carry with your futures, or short options.
Prepare for the one off events and PLEASE do not pay much attnetion to arguments based on past events.
Anything can and will happen.

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Funded campaigns don't get deleted. The fact that it was deleted indicates a different story.

Mike

Like a scam?

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Like a scam?

I think the intention of gofundme was created for more humane causes than trading accounts with deficits.

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Like a scam?

I didn't mean to thank your post but can't undo it on my phone, I'm not saying it's a scam.

No, not necessarily a scam. I can't vouch either way. But another example would be a violation of terms of service.

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Look at KBIO today.

Printing > 40.

Also for those who keep saying he shouldn't have traded a penny stock, this isn't an OTCBB stock, it's listed on Nasdaq.

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Big Mike View Post
Look at KBIO today.

Printing > 40.

Also for those who keep saying he shouldn't have traded a penny stock, this isn't an OTCBB stock, it's listed on Nasdaq.

Mike

And no shorts were available anyway. Etrade scooped all up. Talk about forex brokers after that

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  #96 (permalink)
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Sounds like he was following Timothy Sykes with shorting the low cost stock through Etrade. He's all about shorting penny stocks.

I feel for the guy, but don't go online and expect others to pay for your stupid mistake.

It happens 100% of the times if you follow someones lead.Did does and will.

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This guy put a short and went to a bar.

moreso,he could afford to lose his initial stake,he said.great starting point!

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  #98 (permalink)
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I'm new to the this thing.
I've seen some of Mike's webinars on YouTube.
Reading a GoFundMe page like this always brings my brain back to what creative thing can an individual do to fund an account? Maybe sell a "system", sell a "membership", or sell a made up story about losing your ass on a short. You couldn't start a GoFundMe without a sob story. You can't start a GoFundMe with "HEY, I'm a fantastic trader. I'll make you money. Just get me to $100K and I'll divide the profits with everybody! We'll be rich by the end of the year!"

So I'm suspicious...

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Dang $15k for vet bills!

Ouch....



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Big Mike View Post
Look at KBIO today.

Printing > 40.

Also for those who keep saying he shouldn't have traded a penny stock, this isn't an OTCBB stock, it's listed on Nasdaq.

Mike

I always thought any stock below $5 is near getting to be considered a penny stock. Apologize for my lack of education,(and I do meant that) does a stock need to be in OTCBB to be called a penny stock?

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Last Updated on August 31, 2017


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