The spring and, to a lesser extent, summer of 2009 were packed with lottery plays that became a regular point of discussion on this blog. These were battered stocks which had the potential – often realized – of soaring hundreds of percent higher in price.
Those days are behind us, and the lottery plays have found themselves in different broad categories for their present condition. Some of them never really took off, but still have the potential to do so……
…..others have lost most or all of their prior gains, since the market realized the companies behind these stocks were nothing to write home about in the first place………..
……whereas others have, almost inexplicably, found solid footing…….
We are in a very different market now, and I'm on the hunt now for bearish "lottery" plays; of course, these don't have the potential of long lottery plays, because the percentage changes are, by definition, only in the double digits. But these days, I'm usually getting one good "blow up" a day. Yesterday (Friday), for instance, one of my shorts – CTCM – took a nice tumble:
But this brings to mind the frequent warning about shorting stocks: "your potential losses are infinite." I've always thought that was an idiotic warning. To me, the much more serious warning is just the opposite: "your gains are finite."
But, unlike March, we are not facing a landscape of penny stocks that, just a year prior, were priced well into the double digits. I think the glory days of long lottery plays are an artifact of early 2009. Now I'm focused on tumbles with relatively modest percentage gains. It may not sound ambitious, but in my opinion, it's the best strategy for my style of trading right now.