Author Topic: How to exit a position with a thin market  (Read 2686 times)

Reepekg

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How to exit a position with a thin market
« on: August 14, 2014, 09:12:02 AM »
Alright expert traders,

I am the proud owner of a stock that nearly went bankrupt (so I bought a load of shares) and has since rebounded. My position is currently 15% of the average daily trading volume. I should probably add that I have an american OTC markets version of a European stock with average volume of 2.2m shares/day... so maybe the price is impacted differently?

At my level of ownership, is it going to be a liquidity problem if I try and sell all at once? Do I have to do anything differently than just click sell like with an S&P index?

beltim

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Re: How to exit a position with a thin market
« Reply #1 on: August 14, 2014, 09:14:52 AM »
You definitely want to use a limit order, which specifies a minimum sell price.  Depending on the trading day, you may or may not be able to sell it all in one day at the price you want.  Most brokerages will let you carry over an open order for multiple days as it executes in bits and pieces.

brewer12345

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Re: How to exit a position with a thin market
« Reply #2 on: August 14, 2014, 09:37:54 AM »
I would not use a giant limit order for this.  You will only depress the stock price and feed the HF traders.  Instead, I would watch the stock.  You clearly have a price that you are willing to sell at.  When you see a solid volume day with the  stock rising, give the buyers what they want (in chunks).  Rather than dump a ton of sell volume into an eager market, throw pieces to the hungry dogs gradually and keep them hungry.  This will take a while, but you will likely end up with better execution.  If you are lucky the company will announce some positive news or some idiot sell side analyst will upgrade the stock and there will be a flurry of buying on good volume.  In that case you may be able t sell into the strength and liquidate pretty quickly.

Reepekg

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Re: How to exit a position with a thin market
« Reply #3 on: August 14, 2014, 09:58:27 AM »
I would not use a giant limit order for this.  You will only depress the stock price and feed the HF traders.  Instead, I would watch the stock.  You clearly have a price that you are willing to sell at.  When you see a solid volume day with the  stock rising, give the buyers what they want (in chunks).  Rather than dump a ton of sell volume into an eager market, throw pieces to the hungry dogs gradually and keep them hungry.  This will take a while, but you will likely end up with better execution.  If you are lucky the company will announce some positive news or some idiot sell side analyst will upgrade the stock and there will be a flurry of buying on good volume.  In that case you may be able t sell into the strength and liquidate pretty quickly.

In thinking about this strategy, is there a way to calculate/optimize chunk size or is it just by feel? Normally I hate fees and deal with commission-free ETFs, but I guess I can imagine like $100 involved in making 10 trades could more than pay for itself... even if I'm philosophically opposed.

svosavvy

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Re: How to exit a position with a thin market
« Reply #4 on: August 14, 2014, 10:10:50 AM »
I totally agree w/ Brewer.  Get your hands on some level 2 quotes so you can see the bid stack.  You will be able to see the bid ask volume and not flood it out with big clunky trades.  Talk to your broker maybe you could hire a trader for a day to do it if you are nervous.  Never done this don't know if you can.  Sounds like you would be a pretty nice client to have.  Broker /dealers will throw their grandmother down the stairs for a well heeled client.

brewer12345

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Re: How to exit a position with a thin market
« Reply #5 on: August 14, 2014, 10:12:33 AM »
I would not use a giant limit order for this.  You will only depress the stock price and feed the HF traders.  Instead, I would watch the stock.  You clearly have a price that you are willing to sell at.  When you see a solid volume day with the  stock rising, give the buyers what they want (in chunks).  Rather than dump a ton of sell volume into an eager market, throw pieces to the hungry dogs gradually and keep them hungry.  This will take a while, but you will likely end up with better execution.  If you are lucky the company will announce some positive news or some idiot sell side analyst will upgrade the stock and there will be a flurry of buying on good volume.  In that case you may be able t sell into the strength and liquidate pretty quickly.

In thinking about this strategy, is there a way to calculate/optimize chunk size or is it just by feel? Normally I hate fees and deal with commission-free ETFs, but I guess I can imagine like $100 involved in making 10 trades could more than pay for itself... even if I'm philosophically opposed.

By feel.  It will depend on how enthusiastic the buyers are, in part.  If there is big volume and an uptick in price, you may have an easy time moving big hunks.  You will know that your chunk is too big if you make an offer, have maybe a bit of it get hit, and then have the price back off a few cents to below your limit.