Friday, December 27, 2013

There Must Be Some Way To Take Advantage of Pump and Dump Spammers

If you don't know what a pump and dump spam is, a short explanation is that they send out emails trying to persuade people to buy some penny stock because "it is about to skyrocket!"  The sender has bought 100,000 shares of a stock that sells for a penny or two a share, and when all the gullible sorts drive the price up by two cents, they sell all the shares, make a couple thousand dollars, and those stupid enough to have bought at $0.02 a share now see the stock fall to $0.01 a share.  The only good news is that people this easily taken probably could not afford to buy more than 5000 shares, so each victim is only out about $50.

I was looking at one of these pump and dump emails from March that was promising that PNGM was going to rocket to $0.15 a share at a time when it was selling for about $0.03 a share:

Your Smallcap Brief Newsletter has Arrived. You must Call your Broker Direct to Place Order!

Date: Mon, Mar 25th, 2013
Company: Pengram Corp
Symbol to buy: P_NGM
Current price: .024
Long Term Target Price: 0.15

This Stock is where the money flow could go! Are you ready for next week. 

Today, of course, it is selling for about $0.0023 a share.  But sure enough: there was a brief spike in the stock price shortly after I received that spam, and I suspect the spammer in question made a little money on it.

It got me to thinking: is there some way to take advantage of this antiknowledge?  I don't have any experience with options, so I have no idea if you can buy put options on these silly penny stocks or not.  It does seem like a fairly sure thing that if you get one of these pump and dump spams that within a couple of weeks, whatever stock they are promoting is going to be worth a lot less than it is right now.

1 comment:

Jim said...

I don't believe penny stocks are optionable - how much would a contract cost? one cent? The float on those stocks are usually very thin so even if you could short the stock, you might not be able to borrow enough shares to short and if you could, shorting a significant number of shares would probably cause the stock to tank.

I guess the only thing you could do is to try to buy before the stock goes up and then sell when it does. As I say, you might not be able to buy enough shares to do any good. I think I would just delete the email.

This reminds me of a story that I believe was from the Twilight Zone about a guy with a large mailing list who sent market predictions - half that it would go up, half that it would go down. To those who got the correct prediction, he sent another (half to go up and half to go down). To those who got the correct prediction, he offered to sell his next prediction for a nominal fee. To those who pay, he sends his prediction (half to go up, rest to go down). To those who got the correct prediction, he sends them a letter offering much more for his next prediction (to them, he's been infallible). He sends out his prediction again and to those who got the correct prediction, he offers his next prediction for a large sum (he has really been infallible to them). To those who pay he sends another prediction and never sends another.

Of course, this was written long before the days of email which would make this much easier and cheaper to do on a much larger scale. I'm a little surprised that somebody hasn't tried this already. I have to believe it would be much more effective than those idiot spam emails from Nigeria.