On Sep 24, I was watching the market and I noticed this insane move of AMRN from $3 to $9 in the premarket. I usually get greedy when I see large increases in price, I buy at the top and I usually end up losing money in the following days. This time won't be the same! I will go against my instincts, which failed me so many times before! This time I will go short! It will be my very first short and I will end up with a quick and healthy profit. I am well aware of the risks of shorting. If I go long on a stock and the stock is $1, I can lose at most $1. But if I go short on a $1 stock and the stock increases to $10, then I lose ten times the money I put down. Yet, such an increase of 300% has to go down once the market open. I will be cautious though. What's the news that triggered such a big move? I have no idea about medicine and pharmaceuticals, but from what I understand the company makes some fish oil pills. Plenty of companies manufacture fish oil pills. What's the news about? They did studies and found a statistically significant correlation between people who took the pills and some positive health effects. About one in four people had positive effects in cardiovascular disease. Which means three out of four people did not benefit in an observable manner from taking the pills. Is it a good news? Of course it is. Does the stock deserve to go up? Sure it does! How much should go up? Well, this is a good question. If 25% of people benefited from taking the pill, why shouldn't the stock go up 25%? This seems fair to me. Apart for this, they make fish oil. There are hundreds of companies who produce fish oil tablets. What AMRN found about the benefits of taking fish oil should make people aware of the benefits of taking any fish oil pills. The same with the generic medicines, versus the good brand medicines. At the pharmacy, we are asked all the time if we want to buy the generic types and they still work. Their study will merely convince more people to buy fish oil, no matter what the brand. So, unless Amarin are using extraterrestrial fish to produce their pills, what's the big deal? Ok, now let's check the company fundamentals. It is a pretty large company, with a market cap of almost 1 billion dollars. And they are still losing money! They recorded a loss of 84 million dollars in the last year. How much debt do they have? There is no information of the level of debt. Could be nothing, could be more? Not that important. What did the stock do in the last year? Lost 20%. Did the insiders purchase stock? In 2018 all trades were sales. So the insiders don't see a very bright future of the company. Same business as usual. What do analysts say about the stock? The number is 1.60 (1 is strong buy, 5 is strong sell). More analysts say to buy than to sell. I don't trust analysts that much anyway, most of them can't even beat the market! So let's follow closely the moves in the stock. In the premarket, the peak was around $12.48. People are really insane!Then it started dropping. In the five minutes before market opens, the stock already dropped to $10! I was right! If I had shorted above $12, I would have made 20% in minutes! The traders must have more sense. So let's not lose this golden opportunity of shorting the stock. I got in at $9.98. After about 30 minutes since the market opened, the price dropped to $9.55. I was right! I am making money on my first short! Now it's getting late. Let's go to bed and count the profit in the morning! Of course, I am aware of my performance. I am losing money on almost every trade I make. No matter how much I want to get rich (fast!), let's prove first I can at least bring my balance to the starting value. I started my trading account with about US$10000 a few years ago, now I am down around $8500. I bought Netflix for $97 (after reading the CEO of Netflish purchased $60 million of shares) and I sold it a week later for $94. I purchased one Amazon share and one Google shares and they made money for me. They almost covered the losses I encountered on all other tens of trades I made! But then I decided I will sell everything, so I can have liquidity for my day trading adventures! They are so exciting! So I will only put $100 in this great trade. I will be very happy if I end up with 30% profit on my first short. Next morning, I discover the stock actually closed at $12.55. Hmm, traders can be such fools! Let's give them time to realize it's not such a big deal. What do analysts say after the first day? Some of them actually recommend buying and they think the stock may reach $20! Poor buggers. A day before they had no idea the stock was about to explode and now they show up with their wise advice, when it is already too late! I am wondering though, have I took the right decision? Maybe the jump of 300% was really too high to think about shorting the stock? Maybe the market capitalization of one billion shows this is a pretty solid company? I would have felt more confident shorting a company which is under 200 million and which has a clear downtrend. Well, let's wait a few more days and see. Morning of 29 of Sep - damn, the stock is now up to $16.94. Had I went long on the stock I would now be up almost 70%. And some analysts are thinking the stock may have another 5X upside from the $12.50 it reached on Sep 24. That's around $60? I'll most likely cover my loss on Monday. I already lost $70 from my initial $100. At least I was wise enough to remember my past performance and not to risk too much money! What do I think now? I have no idea. I was clearly wrong shorting the stock. Should I go long? At $16.94? When I had my hands on it at $10? I am not THAT stupid! And what if I buy it around $17 and the stock will fell to $10? Won't I become a double fool? Could the stock reach $60? Most certainly, but only if I don't buy shares! :)
Great post. Sorry it didn't work out but it was a great read.
NickFi
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@Roberto25, Thanks Roberto. I'll try to be wiser next time.
HanmoGao
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@NickFi, feel like a dip is coming. The social media age somehow changed some stocks' performance. If you have a breakout, people are not gonna read the full article. "break through""300%" is all they gonna read in their mind.
NickFi
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@HanmoGao, I got out at $18.00, for a 80% loss. It took me a while to accept I was a fool. After I sold, I see that it dropped to $16. A correction will come at some stage (maybe it already started). The big question is when will it happen and how much will it drop? Some stocks can keep raising for weeks before a meaningful correction appears. I have no idea what will happen tomorrow, will it go up or down. I think it could be either way (my guess would be another drop of around 10%, but I would not put money on it). Some of the people who read just "break through 300%" maybe were naive, but they didn't get intimidated by how much the stock increased in only one day.
mzaheer
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@NickFi, I SHORT AT AROUND $17.20. I WAS CONFIDENT THAT IT WILL CONTINUE DROOP UNTIL END AND I SOLD AFTER MARKET FOR $15.86. SUGGESTIONS FOR DAY TRADER IS: ALWAYS SECURED YOUR INVESTMENT BY 'OCO' AND TRY SELL YOUR STOCKS EVEN YOU MAKE '0.5/SHARE'. NEVER INVEST ON THESE STOCKS FOR MORE THAN FEW HOURS. IF YOU HAVE 60% SUCCESS RATE THEN IT'S GREAT DO NOT JUMP ON ANY SECURITIES UNTIL YOU KNOW THE FEELINGS OF THE PATTERN. GOOD LUCK
HanmoGao
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@NickFi, god, look at it now. This is getting fun. Short squeeze? Proved one thing, if you dont understand it, cut your lost. Good choice bro