BigTrends

Stock splits, exploding prices as a result, giddiness, everyone talking about it.  We haven't seen many stock splits over the past few years, but this may be coming back in vogue.   I remember the bubble days in the late 1990's when irrational behavior was the rule not the exception.  Was I caught up in the frenzy?  You bet I was, because it was safer to go with that tidal wave than to fight it.

So, last night Baidu announces a tremendous quarter AND says they will split their ADS shares 10-1.  As of this writing the stock is up only up 15%, yet that is 93 points from yesterday's close!  Maybe it's short covering, maybe it's giddy buyers.   I recall the last time seeing such a huge move point-wise was with Google earnings a couple years back.  Is this such a big thing?   Splitting shares provides NO value yet the 'little guy' or 'retail investor' clamors to get in on the action.  As one might expect companies will feed this obsession.

Back in the late 90's it was a guessing game as to who would split their stock, like a game of leapfrog.  I recall one instance when JDSU announced a split on Thanksgiving 1999, pending board approval it would be done Jan 2, 2000.  Well, in that six week period the stock went up so much that on the day they split JDSU announced ANOTHER stock split!  Simply amazing.  Companies with high stock prices are watching Baidu very closely here...who wouldn't want a pop in their stock from a silly stock split?  But if that is what the market wants, I'm sure they will oblige.  As an aside, GMCR announced a 3-1 stock split and inline earnings and is getting beaten.  Tempered enthusiasm?

Count me out of this game this time around.  Once is enough!

Last week, I piled into some BIDU 430 calls as it appeared the stock was heading past there.  At the time, BIDU was 418 and stirring around.  It dropped a bit, then Monday's big move higher didn't get us any traction, and the calls slipped.  It was a higher risk trade to begin with, and I had booked some winners the prior week.  At this point, I could have bailed out for a 65% loss or just waited for a miracle (those happen sometimes).  Tuesday was devastating for the stock as the market got pounded.  I did not want to touch this one, even considered buying puts (considered, not acted).  I thought the worst, total loss...it happens, I'll move on.  To my surprise, the stock reacted well to Google's news and it seemed it could reach 420 today, but I knew time was not on my side with a January strike.  In pre-market, the stock was trading at 460, which would have been 30 on these calls, a 5 bagger!  Never traded there of course, but did manage to get 'lucky' and salvage a 64% gainer.  Oh, I know what you're saying...few and far between, luck, etc.  However A WIN IS A WIN, it doesn't matter how you got there, but that you DID get there. 

Often on Expiration Friday, you will find that certain stocks, indices, & ETFs get basically "stuck" around a certain round level that corresponds to an option strike price.

Why does this occur?  Well, there are a variety of factors ... and it is not usually just comprised of pure "market manipulation" as many think.

If a stock is lingering around a strike price, the expiring open interest there (especially if it is sizeable) may cause market makers to constantly be buying and selling around that level, esentially causing the stock to get pinned.  This is because market makers are usually hedging their delta (and gamma), and their front month option greeks will be changing as a stock osciallates around a strike price.

Another factor is that there may be a great deal of options trading hands around that strike price, which then causes the market makers to hedge with stock trades, as well.  There also is the psychological factor that traders and stocks are often drawn to "round" numbers such as strike prices, and there will be a significant number of buyers and sellers around that number, for example.  Also, many of these round areas are important from a technical perspective and may be the location of important resistance or support.

With that in mind, there certainly is a "pinning effect" that is often seen on Expiration Fridays.  This may be option related and may be "released" from the shares on Monday (but that is certainly not guaranteed).  Taking a quick scan of stock screens, here are some that jump out at me today that ended very close to strike prices:

Google (GOOG) - 430 strike
Citigroup (C)- 3 strike
Pfizer (PFE) - 15 strike
Bank of America (BAC) - 13 strike
Caterpillar (CAT) - 34 strike
Yahoo (YHOO) - 17 strike
Baidu (BIDU) -320 strike
Dish Network (DISH) - 16 strike
First Solar (FSLR) - 145 strike
SPDR Gold (GLD) - 92 strike
Mastercard (MA) - 180 strike
Wells Fargo (WFC) - 25 strike
IBM (IBM) - 115 strike
McDonalds (MCD) - 57.5 strike
JP Morgan (JPM) - 37  strike

It wasn't too long ago when Facebook's CFO left the company and the Wall Street Journal reported that the social media giant was looking for someone with "public company experience."  That was a good hint...

Now it seems as though Facebook wants to become the next hottest stock - Facebook CEO Mark Zuckerberg announced the new CFO today, David Ebersman, the former Genentech (remember DNA) CFO.

Genentech's IPO on July 20, 1999  brought in a record amount for the biotech indutry - Can Ebersman match bring a new record for social media IPOs?  Here's a quick comparison to other tech giants Google (GOOG) and Baidu (BIDU). 

Unique Visitors (Facebook vs. Google vs. Baidu ('Chinese Google')