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Underperform calls on .PK and .OB



May 04, 2007 – Comments (3)

CAPS stocks with the suffix .PK or .OB are over-the-counter stocks.  That means that they're not traded on one of the major exchanges like the NYSE, AMEX or Nasdaq.  Instead, they're traded by brokers who negotiate with each other directly.  Volumes can be thin and the companies aren't held to stringent reporting requirements by the SEC.

That means that the markets in these stocks aren't efficient.  And because of this, it's next to impossible to get someone to buy your short of one of these stocks.  Stocks on the pink sheets - .PK - usually get there because they're on their way to bankruptcy.  There's not likely to be much interest in speculating in derivatives in this case.

In other words, in the real world, even if you think one of these stocks is going to decline in value, you can't make money off your opinion.  Unfortunately, the same isn't true in CAPS.  So when you see a CAPS player whose underperform picks on over-the-counter shares have netted them a majority of their score points, you are seeing someone who is gaming the CAPS system.  That kind of stuff isn't useful for the purpose for which CAPS was created, and it's a waste of time and effort.

I'd like to see .PK and .OB banned from the CAPS system.  When a stock goes pink, like NEWC did last month, all the CAPS picks on it should end automatically.

3 Comments – Post Your Own

#1) On May 04, 2007 at 4:48 PM, seanleckey (99.33) wrote:

In other words, in the real world, even if you think one of these stocks is going to decline in value, you can't make money off your opinion.


Well, if your opinion is that the stock will not keep pace with the S and P (which is what the thumbs down represents), you can put your money in an S and P index fund, thereby making money off of that opinion.


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#2) On May 04, 2007 at 5:02 PM, motleyanimal (36.15) wrote:

Many good foreign companies are traded OTC and there are often opportunities to take advantage of thin trading as well as exchange rate differences. The disadvantages are that they are often not considered marginable securities and are illiquid. I have a fair sized position in Vault Energy Trust, VNGFF.PK and it is one of my best YTD performers and pays a 19% monthly distribution. They are also in the process of buying back 10% of their shares. The declining dollar has also added value over the past month.

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#3) On May 05, 2007 at 6:06 AM, ElViking (96.50) wrote:

Minimally you shouldn't box out people who made the underperform call before a stock went bankrupt, like in the case of NEWC. I can see an arguement for closing it to new picks, like they do for stocks under 1.50 or 100 M market cap (which does screen out a lot of the "junk" on its own). But automatically closing picks that go bankrupt doesn't make sense.

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