This page has been archived and commenting is disabled.

The 50 Most Illiquid Stocks

Tyler Durden's picture




 

Now that everyone is familiar with the idea of going long the most shorted stocks, a strategy which over the past several years was easily the best alpha generator available and has since become so commoditized there is even a short squeeze ETF, the SQZZ, the easy money has been made. As a result, hedge funds up and down Wall Street, or rather Park Avenue, are scratching their heads how to collude best (just don't tell the SEC) and generate the highest returns while risking the smallest amount of capital.

One of the strategies that has emerged in the post-squeeze normal is cornering the most illiquid stocks, and pushing them up, or down with relative ease due to the lack of liquidity and/or broad participation. Think of it as what the HFTs do each and every second with countless top hunts meant to ignite momentum once stops are hit, and to give HFT algos virtually risk-free returns with virtually no capital at risk.

But how does one go about quantifying what are the most illiquid stocks: is it the ones that trade the least on any given day (a double edge sword, because exiting a position would be that much more problematic after pushing the prices to any desired level), or is it simply those where individual trades have the highest price impact?

One suggested answer is to look at the equities whose current float is a small fraction of their total outstanding stock: these are names which have a big institutional concentration due to their recent corporate history, typically the result of Chapter 11 exits where the bondholders were equitized (Sears, Federal Mogul), or due to a recent IPO in which just a small amount of their total shares outstanding were sold to the public (incidentally, so the underwriters can control the price easier) or otherwise have the bulk of their shares locked up and unable to cushion (and take advantage of) big price swings.

So to find those names which are most illiquid based on this definition, below we present a CapIQ screen of the top 50 Russell 3000 names that have the lowest float as a % of total outstanding shares.

 

Naturally, the above list is not exhaustive and with a little searing one can surely find far more "illiquid" stocks based on any one particular definition of the word. However, the above list is likely a good place to start when analyzing the names which hedge funds would likely dabble in when trying to recreate HFT-type stop hunts at a major level as the preponderance of other illiquid names are simply too small for hedge funds to take a stake, as such they are at best PA trading vehicles.

As a result one possible trade idea would be to put on a long-term straddle (preferably while VIX is still cheap) on some of the above names, and hope for a volatility shake out, either to the up, or downside.

With the amount of liquidity packets in the broader market, and the sense that something big may be just over the horizon, which is now even starting to dent the broader market's relentless buying spree for the past 3 years, finding a pool of potentially heightened volatility and trading in advance of implied vol becoming realized, is probably not the worst possible trade idea.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 06/08/2015 - 16:36 | 6175878 ShrNfr
ShrNfr's picture

Sorry, I refuse to play chicken with Pilgrim's Pride. I will leave that to the morons on Squack Box to lay an egg in another attempt to put a feather in their caps.

Mon, 06/08/2015 - 16:38 | 6175887 Deathrips
Deathrips's picture

DTCC

"We dont know who owns the shares...but the fiduciary in london will gladly take them".

Almost like thinking you won the horse race, when you were watching in the stands with no ticket in hand.

 

RIPS

Mon, 06/08/2015 - 20:46 | 6176741 DeadFred
DeadFred's picture

So do they have a list for the S&P500? I've looked around but can't find one anywhere. I watch illiquid EIX bacause when 'someone' starts buying large batches of SPY it goes through the ceiling, a 1/4% rise in the index can translate to a 2%+ rise in less than an hour as all the available shares are purchased to back the newly created SPY shares. But I doubt I came up with the best of the 500 so I'd love to have a full list to check. Who knows maybe someday the stock will move on real news instead of on central bank puchases. Wouldn't that be novel. It barely moved a whisker today which means no one tried to ramp the index off support. The end may be nigh, or not.

Mon, 06/08/2015 - 16:39 | 6175893 JBilyj
JBilyj's picture

"As a result one possible trade idea would be to put on a long-term straddle (preferably while VIX is still cheap) on some of the above names, and hope for a volatility shake out, either to the up, or downside."

Good idea

Mon, 06/08/2015 - 17:32 | 6176054 kaiserhoff
kaiserhoff's picture

Maybe, but the bid/ask could go to the moon on these turkeys.

They are illiquid NOW.

 

Mon, 06/08/2015 - 20:17 | 6176639 Paveway IV
Paveway IV's picture

Depends on the shorts. Big open short positon means management could be hedging their personal bank. If there's almost no open shorts then roll a long iron condor forever because those stocks are not meant to change price. This strategy works perfectly until it doesn't, but the heroin should have kicked in by then.

Mon, 06/08/2015 - 16:42 | 6175912 KnuckleDragger-X
KnuckleDragger-X's picture

If you can't dazzle them with brilliance, baffle them with bullshit and there is plenty to go around.....

Mon, 06/08/2015 - 16:42 | 6175913 BullyBearish
BullyBearish's picture

Bet it all on CZR...

Mon, 06/08/2015 - 16:50 | 6175940 Caveman93
Caveman93's picture

Wow VMWare!? I'd like to see how they "virtualize" themselves out of this one!

Mon, 06/08/2015 - 17:05 | 6175982 Billy Sol Estes
Billy Sol Estes's picture

Where is Luby's Cafeteria?

Mon, 06/08/2015 - 17:07 | 6175990 brewing
brewing's picture

Oops, I work for one of these companies...

Mon, 06/08/2015 - 18:54 | 6176343 Yancey Ward
Yancey Ward's picture

You are golden then- your pension is heavily invested in it!

Mon, 06/08/2015 - 17:28 | 6176047 kaiserhoff
kaiserhoff's picture

Clever little buggers.

Always finding new ways to fleece the sheep.

Mon, 06/08/2015 - 18:24 | 6176230 Berspankme
Berspankme's picture

I see the Squawk Box favorite GAMCO on the list or at least it was a favorite about 5 yrs ago when I quit watching

Mon, 06/08/2015 - 18:53 | 6176342 Yancey Ward
Yancey Ward's picture

I didn't see Shit.com on there, stock ticker TURD.

Mon, 06/08/2015 - 19:57 | 6176568 Meyer Blinder
Meyer Blinder's picture

SQZZ was registered a year ago and never been issued, but hey facts are irrelevant on Wall Street and in this piece.

http://www.sec.gov/Archives/edgar/data/1603026/000089109214004442/e59139...

 

Mon, 06/08/2015 - 20:10 | 6176609 ebworthen
ebworthen's picture

Well, at least "Isle of Capri Casinos Inc." and "Sears Holdings Corporation" belong together.

Mon, 06/08/2015 - 21:33 | 6176909 q99x2
q99x2's picture

It works I did it once or twice. But there is a problem in doing this: the owners may decide to dump at the same time you do.

Do NOT follow this link or you will be banned from the site!