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New Drug Application and it’s implication on stock price

A New Drug Application (NDA) is submitted by pharmaceutical companies to the FDA for approval after clinical trials are complete in order market and sell the new drug in the US.

A typical NDA tells the full history of the proposed drug and can have over 100,000 pages of information on the drug from it’s initial laboratory tests through phase 3 clinical trials, with the main purpose being it’s safety and efficacy for it’s intended use on humans. Along with all the studies, data, analysis and any information gathered along the clinical trials, the NDA must include:

  • Patent, Manufacturing, Labeling and Packaging information
  • Safety information
  • Possible abuse information
  • Direction for use
  • Any additional studies not performed in the US

Once the a completed New Drug Application is submitted, the FDA has 60 days to conduct it’s preliminary review and decide whether it will accept and file the application or, if the FDA finds the information insufficient, reject the application by sending a refuse to file letter explaining how the application failed to meet requirements. If the NDA is accepted, the FDA will decide if the NDA requires standard or accelerated review. Under the Prescription Drug User Fee Act a standard review is 10 months and an accelerated review is 6months. Accelerated reviews being allowed for generic drugs, drugs that provide meaningful therapeutic benefit over there drugs, drugs that treat serious or life threatening conditions, or treat previously unmet medical need.

FDA Review of New Drug Application

During the process of reviewing the NDA, the FDA has members that conduct reviews on different sections of the NDA, for example:

  • Medical officers review clinical date
  • Pharmacologist reviews the data from animal studies
  • FDA inspectors investigate to find if any information was withheld or manipulated

The FDA will then decide whether to approve the New Drug Application or submit a Complete Response Letter articulating it’s decision not to approve the NDA in it’s current form and letter the provide the application with guidance and steps on how to gain an approval.

How the New Drug Application affects Investors:

Once a company has reached the NDA stages, there is about an 80% probability that the drug will eventually be approved for marketing and sale in the US. The filing of the NDA normally does not increase the price of a stock much, as most of the appreciation should have occurred during the Stages Of New Drug Development, and when approved.

BUT the decline of a NDA could lower the price of a stock as it will cost the company additional time and resources to refile or conduct further studies, if needed.

In my experience after a successful phase 3 clinical trial result, the stock price could increase in value (not always), but then it will slide down some as few investors want to have their investment stagnant over the period of time it takes to gather all the information and prepare the NDA.

During this wait period there are risks the company might need financing, the best way to study this is by looking into the company’s finances and financial reports. The company could also sell some rights to it’s drug, partner with other companies, or even become a candidate for a buyout.

A few months before the FDA is ready to answer the NDA and either provide an approval or request more information, the stock will again gain some momentum and could again start a rally upwards into the FDA approval date, PDUFA date as it is called by some. Personally, I don’t like to hold through catalyst events, and would rather ride the hype and sell the news.

As of 2018, the New Drug Application fees (PDUFA fees) are:

New Drug Application Fee – Clinical Data Required $2,421,495
New Drug Application Fee – No Clinical Data Required $1,210,748

New Drug Application
New Drug Application

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How the Prescription Drug User Fee Act affects Investors

In 1992 Congress passed The Prescription Drug User Fee Act, PDUFA, allowing the FDA to collect an application fee for new drug applications, in return for certain performance benchmarks, mainly speed. The under the Prescription Drug User Fee Act the FDA is required to respond to NDA’s within a 10 month period. Previous to the PDUFA act new drugs were taking too long getting to market, according to FDA, due to lack of funding.

Since Congress first authorized PDUFA in 1992, the average time for new drug approval has dropped by nearly 60%. This was the goal of the PDUFA, getting new drugs to the market quickly and as safely as possible. The fees collected from the drug manufacturers is used solely for human drug and device approvals activities, and are a supplement, not a replacement, to any government funding.

PDUFA also requires congressional action to reauthorize every 5 years. This is done to ensure the refining and modernizing of the approval process, clarify any expectation dragon the development process, and promote long term stability of the FDA’s drug review and approval programs.

How the Prescription Drug User Fee Act affects investors

In essence as a stock trader the Prescription Drug User Fee Act does not in itself interest you, it’s whether the FDA will approve a new drug or provide a complete response letter (CRL), and the stages of New Drug Development which could make the stock price of a biotech company move in either direction.

The way that the PDUFA mainly affects investors is with it’s time frame. The FDA is mainly given 10 months to review and provide a response, unless the drug is designated for priority review, at which point the FDA is given six months to review that drug. However the FDA can respond at any time prior to the 10 months, with an approval or CRL.

By policy the FDA does not publish or release PDUFA dates, but some biotech companies do in hopes of increasing their stock price as an approval will normally increase it’s value.

Here are the basic Stages of New Drug Development:

  • Animal Testing to gather information on safety and efficacy
  • Investigational New Drug Application submission
  • Phase 1 Clinical Trial: Healthy volunteers looking for side effects and how the drug metabolizes and excretes the body
  • Phase 2 Clinical Trial: Hundreds of patients focusing on effectiveness in a diseased population
  • Phase 3 Clinical Trial: Thousands of patients, gathering more information on safety and efficacy
  • New Drug Application: FDA has 60 days to decide whether to accept application
  • FDA reviews Drug Labeling to ensure appropriate communication to providers and consumers
  • Facility Inspection: To ensure compliance
  • Drug Approval, or Complete Response Letter
  • Phase 4 Clinical Trial: Continued safety and efficacy monitoring

Here are some of The Prescription Drug User Fee Act, PDUFA fees:

Prescription Drug User Fee Act (PDUFA) 2017 2016 2015
New Drug Application (With Clinical Data) $2,038,100 $2,374,200 $2,335,200
New Drug Application (Without Clinical Data) $1,019,050 $1,187,100 $1,167,600
New Drug Application Supplement With Clinical Data $1,019,050 $1,187,100 $1,167,600
NDA Establishment $512,200 $585,200 $569,200
Annual Product Registration $97,750 $114,450 $110,370
Prescription Drug User Fee Act
Prescription Drug User Fee Act

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Complete Response Letter

When a pharmaceutical company receives a FDA Complete Response Letter it means that a review of the New Drug Application, NDA, was completed and a decision to approve was not reached for the new drug application in it’s current form and with the current information provided. Basically a CRL can be thought of as a rejection letter, but it does not mean that the drug can never be approved. In the Complete Response Letter the FDA will provide a description of the requirements that were not met, and normally any recommendations of actions to gain approval.

Actions Following a Complete Response Letter:

An applicant must respond to the CRL within one year or the application is considered withdrawn unless an extension is granted.
The applicant can respond to the Complete Response Letter in one of three ways:

  • Resubmission – the company can resubmit the new drug application addressing all deficiencies identified in the complete response letter.
  • Withdraw – the application without prejudice, allowing for a subsequent re-submission of the NDA at a later time.
  • Request a hearing – the applicant can request a hearing meet with the FDA and discuss whether there are grounds for denying the application.

If the applicant resubmits the drug application, the FDA will then have a certain amount of time to once again make a decision. This decision may result in approval or another Complete Response Letter. This could go on until the drug is approved or the applicant decides that it is not willing or able meet the FDA requirements.

How does a Complete Response Letter affect your investment?

The reason(s) cited in the the Complete Response letter is what can affect your investment. The FDA rarely ever rejects a new drug application that was a accepted for review, but it does send out the CRL with issues that need to be addressed before it will review the application again. Some issues have an easier remedy than others, but requesting further clinical trials can very really damaging for a pharmaceutical company’s stock price. A CRL that cites manufacturing concerns and not the drug itself, can be remedied having less of an impact on the stock price.

Not disclosing to shareholders that a Complete Response letter was received could cause shareholders to initiate legal action against the company. Since the specific details are not subject to full disclosure, some companies will notify investors that they received a CRL and provide minimal information.

With larger biotech companies this might not be a major event, but with smaller companies it could be catastrophic. Since most smaller biotech companies have a run up to the PDUFA date, if a smaller biotech company receives a complete response letter, it could need additional funding, which could lower it’s stock’s price.

Because the Prescription Drug User Fee Act, PDUFA, requires the FDA to provide a response within 10 months, in cases where FDA may need more data or clarification for a new drug application, it may issue a CRL to satisfy it’s time requirement and request for more information, in other words the FDA could be “buying time”.

Drug Application can receive CRLs for a variety of reasons, but the most common are manufacturing sites, safety, efficacy, bioequivalence, faulty statistics, product quality and stability, and proposed labeling.

Complete Response Letter
Complete Response Letter

Related: Stages of New Drug Development


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Average down

Average down, or Averaging Down is the process of buying additional shares of a stock at lower prices than you originally purchased, bringing down the average price you’ve paid for your shares.

How the Average down technique works:

Let say you had purchased 500 shares of XYZ at $10/share and the price of XYZ dropped down to $8/share. You buy an additional 500 shares at $8/share to lower your average cost for the 1000 shares at $9/share.
500 * $10 = 5000
500 * $8 = 4000
1000 \ 9000 = $9

Risk of Averaging down

When you Average down on a descending stock you could be doubling your risk exposure on a bad bet. Unless the company has a turnaround, you could end up losing more than your original investment.

Benefits of Averaging Down

The benefit of averaging down is that if the stock price goes back up, it doesn’t have to go as far for you to turn a profit. With the example on top instead of having to go over $10 to turn a profit, the price only has get over $9 to make a profit.

To Average down or not to Average Down?

Whether to average down or not to average down should be calculated with your original plan and/or thorough due diligence; Are you investing long term or is this a swing trade? If this is a long term investment, then you have many big investors that believe in the Average Down approach, If this is a swing trade then most people will tell you to cut your loses and find another stock to purchase.

There are many times that there is a “bump in the road” and you get an opportunity to purchase the stock at a lower price, allowing you to make more profits in the trade. But before you double down you need to thoroughly think through your position size, do some due diligence as to what might have caused the stock to drop in price, and make sure you are not over exposing your risk.

If you’re down on a stock, and continue averaging down without a solid reason to, you’re probably investing emotionally, which is a big no no.

A recent good example of a profitable average down

Stock had good earnings report having increased profits by over 33%, but announced they would discontinue selling a loosing product in the US. The stock price dropped about 70% to $.51 where I purchased shares. The next day it dropped further to .40 creating a floor. The company has $.61 cash per share, and $.88 book per share and I felt it was deeply oversold due to it’s cash position and earning report. I purchased additional shares at $.41, and the next day the stock rallied to close at $.51, putting me into a profit.

A recent bad example of a bad time to average down

A company did an offering and reverse split, and the stock price dropped from $7 to $4 (I stopped out of the stock and did not average down). The stock continued to slide further down on a daily basis without ever recovering. 3 months later the stock did another offering and further decreased the stock price to $.38. From $4 to $.39, if anyone would have averaged down, they would have doubled their losses.

Average Down
Average Down

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SEC Form S-3

SEC Form S-3 is a simplified SEC form that registers securities for public companies that meet certain criteria in order to sell additional shares or register securities under the Securities Act of 1933.

In order for a company to use the SEC Form S-3 instead of Form S-1 for securities, the company must meet the following requirements:

  • Main business and operations are in the United States, or U.S territory.
  • Has previously registered securities in accordance with the Securities Exchange Act of 1934.
  • Has at least $75 million in public float.
  • Previously traded at least $1 billion in non-convertible securities in primary offerings for cash, in the last three years.
  • Must have met all debt and dividend requirements.
  • Has filed all previous paperwork in a timely manner and traded regularly through it’s exchange.

How a SEC Form S-3 can impact Stock Price

First let me tell you that you can never tell whether a stock price is going increase or decrease, ever, and please don’t go and short a stock solely because it filed an S-3 Form. We can look back at past short terms results, and my experience tells me that companies that file a SEC Form S-3 generally have a decline in stock price on the date the form was filed, and/or the day after. NOT all, but most do. There have been numerous times that the stock price surges upwards, generally this is seen on stock charts that were very down already, and most investors were expecting the S-3 form to be filed.

Full text of the Securities Act of 1933.

Full text of the Securities Exchange Act of 1934.

Link to SEC Form S-3

SEC Form S-3
SEC Form S-3

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How Supply and Demand influence stock price

Supply and Demand is the main model of price determination used in economic theory, barring outside influence such as Government control. Demand being the quantity of a specific product a buyer is willing to purchase at a given price. Supply being the quantity of a product or service that the marketplace can or will offer. Therefore the more demand for a product, with limited supply, will drive it’s price higher, less demand for a product will lower it’s price to make it more enticing.

The market does have a way to balance itself. As the demand drives prices higher, suppliers will want to produce more of a product to maximize gains. As that product reaches a certain supply level, it’s price will level itself out.

For example; if 1000 people wanted a ABC but there is only 100 ABC available, then Supply and Demand drives the price of ABC higher due to it’s demand. But if there are 1000 ABC available and only 100 people wanted ABC, then it’s price would be driven lower to entice buyers.

Now, when there is a high demand for ABC and it’s priced high, the producers of ABC are more enticed to produce more ABC in order to maximize their profits. But if the Demand for ABC is low and the producers of ABC aren’t profitable, then the producers will limit their production of ABC, thereby creating less Supply to balance with the Demand. This Supply and Demand will find a balance, where producers will supply an amount that matches the demand from buyers, at a cost that is reasonable to the buyer and producer.

How does Supply and Demand play into stock prices?

Supply and Demand plays into the cost of a stock. When there is more demand but fewer sellers, the price goes up. When everyone wants to sell a stock, but there are few buyer, the price goes down.
Example; If buyers want ABC and start paying the Ask price or buying at market price instead of limit price, then the price of the stock will start going up. When there are very few buyers and no one is buying at the market price, sellers will start selling at the Bid price thereby lowering the price of a stock. There is a define amount of shares available for a company, the share float, but the supply is based on the sellers who are willing to sell their shares.

Supply and Demand
Supply and Demand

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What is the Spread in the Bid and Ask price

The Spread is the difference between the Bid price and Ask price on the level two of a stock. This is controlled by Supply and Demand, who is willing to sell at what price and who is willing to buy at what price. Somewhere in the middle of that is the fees from the market makers (but that is a different discussion).

How Spread in the Bid and Ask price should affect your stock trading?

With stock that don’t have much volume, you should really consider the Spread between the bid and the ask price, as if you bought you might pay the Ask price and if you had to sell at market you would have to sell at the Bid price. If the spread between the two is rather large, you could see some significant losses.

Generally with stock that see high volumes have a tighter spread between the ask and the bid prices. When the Spread is tighter it will be less costly to get out of a stock, should you need to get out at market price. Obviously you could put your shares up at a Limit price, but again, the spread and volume might affect the time, it will take to sell the shares.

Spread in the Bid and Ask price
Spread in the Bid and Ask price

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Watchlist 042418

Stocks Watchlist for April 24th 2018:

ONCS ONCS: (%) – oversold stock chart pattern, possible bounce.
Entry over $1.54, Stop $1.50, could be a swing for $1.80
finviz dynamic chart for  ONCS


BMY BMY: (%) – Oversold with Green Candle, possible bounce.
Entry over $52, Stop %51, Possible run to just under $54 which is resistance level.
finviz dynamic chart for  BMY


AGMH AGMH: (%) – Fibonacci with big stick and green candle day after, could be wild runner.
Entry over $8.60 with volume (essential), Stop at $8, possible profit over $10
finviz dynamic chart for  AGMH


SIEN SIEN: (%) – Continuation pattern
Entry with volume over $13.30, Stop $13, Profit just under $14.
finviz dynamic chart for  SIEN


HEAR HEAR: (%) – Continuation pattern Breakout pattern
Expanding volume, Entry over $4.80, Stop $4.50, possible run to over $5
finviz dynamic chart for  HEAR


MDR MDR: (%) – Beat earnings, missis on revenue – possible continuation
Entry over $7, stop under $7, possible profit over $7.50
finviz dynamic chart for  MDR


MEIP MEIP: (%) – Continuation with several upcoming catalyst
Not a big runner, more of a swing trade.
Would love to enter under $2.10, but doubt will pull back enough, Stop under $2, possible swing to over $2.50
finviz dynamic chart for  MEIP

Good Luck trading,
Frank and Dani Stock Picks
ZitroStocks.com


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Stages Of New Drug Development – Investing in Biotech Companies

In order to bring a new drug to market, there are several stages of new drug development starting with discovery and development, research, and FDA approval. As it refers to investing in stocks, or in biopharmaceutical companies, the main catalysts are Phase 1, Phase 2, Phase 3 and FDA approval (PDUFA). Those are the catalyst I look for to invest, scalp, or swing trade a stock. Sure we can say it’s going up to a phase 2 result, but do you really know what that means for the company stock? Hopefully these stages of new drug development will provide you with more information as to the meaning and implication of these catalyst, and give you an idea on how to investigate and invest in biopharmaceutical stocks.

Just as a side note, I normally don’t like to hold through a catalyst date. I also take into account the company’s cash on hand as many biotech companies like to do offerings to raise cash after their stock has climbed from results. This is not to say that I never hold through a catalyst, as some biotech offer great returns if they have positive results.

According to the FDA there are 5 steps when developing a new drug for market use:

Stages Of New Drug Development – Discovery and Development:

In this stage of new drug development many compounds may be candidates to treat health conditions, but after laboratory testing maybe only a few will be promising enough for further study. Once researchers have identified a promising drug for development, they will experiment in order to gather information on how the drug is absorbed, distributed, metabolized and excreted, it’s potential benefits, get an idea on dosages, how best to administer the drug, possible side effects, how it interacts with other drugs, and it’s effectiveness compared to similar drugs or treatments already in the market.

Stages Of New Drug Development – Preclinical Research:

Prior to testing a new drug on humans, researchers must have sufficient information as to the potential harm and/or toxicity of the compounds.
Preclinical research include:

  • In Vitro: considered to be “test-tube” experiments performed with microorganisms, cells, and biological molecules, normally tested in petri dishes, tubes or flasks.

and

  • In Vivo: studies performed on animals, living organisms, plants and in some cases, humans.

Preclinical research studies look to find information on dosing, and toxicity levels. At this point a decision is made whether to proceed to clinical research. Because the expense associated with clinical trials, the research must have sufficient information as to the possible positive and negative effects of the new drug.

Stages Of New Drug Development – Clinical Research:

Preclinical trials do answer some questions about the drug, but in order to gather more information on the how the drug will take effect in humans, clinical research is needed. Clinical research is the studies or trials on humans.

Prior to starting clinical trials, researchers must have a study plan and follow certain study protocols. Researchers must determine:

  • Who qualifies to participate (selection criteria)
  • How many people will be part of the study
  • How long the study will last
  • Whether there will be a control group and other ways to limit research bias
  • How the drug will be given to patients and at what dosage
  • What assessments will be conducted, when, and what data will be collected
  • How the data will be reviewed and analyzed

Clinical trials follow a typical series from early, small-scale, Phase 1 studies to late-stage, large scale, Phase 3 studies.

Stages Of New Drug Development – Phase 1:

Phase 1 clinical trials are normally conducted on approximately 20-80 human volunteers of which some might have the disease or condition the new drug is targeting. This phase is the initial introduction of a drug or therapy. Phase 1 is generally looking for safety and dosage, and not so much for the efficacy of the new drug. Researchers closely monitor how the new interacts in the human body and adjust dosing to evaluate how much can be tolerated and side effects. Before moving on to phase 2 studies, researches gather information as to how the body handled the drug at different doses, side effects as associated with dosage, and some information as to how best to administer the new drug to maximize results and limit side effects.
About 70% of new drugs move onto the next phase and only about 10% to 15% of Phase 1 drug candidates make it to market.

Stages Of New Drug Development – Phase 2:

Phase II clinical trials evaluate the efficacy of new drugs, the safety of said treatments and dosage specifications. In this phase researchers administer the drug to a group of patients with the disease or condition for which the drug is being developed. Normally involving a few hundred patient. Safety remains a big focus of phase 2 clinical trials, with short term side effects being closely monitored. An increasing emphasis will begin to be placed on whether or not a drug is working as expected and if it’s improving the condition or not. Phase 2 trials will also establish dosage information, as to which performed most optimally. If the experimental drug continues to look promising it’ll move onto phase 3 clinical trials.
Approximately 33% of drugs move to the next phase.

Stages Of New Drug Development -Phase 3:

This is the final phase to new experimental drugs. The drugs that progress to Phase 3 are definitively tested for effectiveness in the treatment or cure of a specific condition, this is where efficacy also plays a big role. These trials are often randomized, meaning that trial participants can receive the experimental drug, a placebo, or another drug considered to be the current standard. In these clinical trials neither the researcher nor the patient know what drug was issued.
Phase 3 trials are normally conducted on hundreds or even thousands of participants, are the lengthiest trials, and normally account for about 40% of a company’s total R&D expense.
Approximately 25-30% of drugs move to the next phase.

Even though rare, at any point during clinical trials the Center for Drug Evaluation and Research (CDER) can impose a clinical hold on if the study is unsafe or if the trial design is deficient in meeting its objectives.

Stages Of New Drug Development (NDA) – New Drug Application:

The NDA application is the vehicle through which drug sponsors formally propose that the FDA approve a new pharmaceutical drug for sale in the U.S.
The goals of the NDA are to provide enough information to permit FDA reviewer to reach the following key decisions:

  • Whether the drug is safe and effective in its proposed use(s), and whether the benefits of the drug outweigh the risks.
  • Whether the drug’s proposed labeling (package insert) is appropriate, and what it should contain.
  • Whether the methods used in manufacturing the drug and the controls used to maintain the drug’s quality are adequate to preserve the drug’s identity, strength, quality, and purity.

The NDA can be tens of thousands of pages containing all the research and safety data examined during all the prior steps. When an NDA is submitted, the FDA has 60 days to decide whether to file it for review, or reject the application because some required information is missing. If the NDA is accepted, in accordance with the Prescription Drug User Fee Act, the FDA will respond within 10 months, at which point the FDA is expected to make a decision. The FDA can, and sometimes does, postpone a decision or even provide their results early; just not very common.

Just because a drug reaches the NDA stage, it doesn’t mean it’s going to be marketed in the US, in actuality only about 80% of drugs that have reached this level are marketed in the US. This stage of the drug development does not do much for investors, as most of the highlights were within the successive phase in clinical trails.

Stages Of New Drug Development – PDUFA date and decision:

Generally the FDA has three choice, Approve, Deny (very rare) or issue a Complete Response Letter (CRL) requesting more information. If the FDA requires more information they will make suggestion as to what is preventing the drug from being approved, sometime this could include running additional studies or alter their manufacturing process (delays are not good for stock prices).

Stages Of New Drug Development- Phase 4:

There is a phase 4, after the drug is approved the FDA can require the drug developers provide long lasting effects of the drug, as safety is the FDA’s main concern.

Development of a new drug through all these phases can take 10-15 years, and cost tens of millions of dollars.

Stages of New Drug Development
Stages of New Drug Development

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510K – Premarket Notification

A 510K, or 510(K), is a submission made to FDA to demonstrate that the device that is to be marketed is at least as safe and effective to an already legally marketed device.

Anyone who wishes to market a Class I, II, and III device intended for human use, that does not require specific FDA approval due to having an equivalent item on the market already, must submit a 510(k) to FDA unless the device is exempt from 510(k) requirements of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) and does not exceed the limitations of exemptions in .9 of the device classification regulation chapters (e.g., 21 CFR 862.9, 21 CFR 864.9).

In basic language, if a company wants to take to market a medical device for which a similar device is already FDA approved, can submit a 510K, and once approved and cleared, can take the device to market.

Full 510K details from the FDA

510K
510K

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Suspended Trading

Suspended trading occurs when the U.S. Securities and Exchange Commission (SEC) believes that the investing public may be at risk, and stop the trading of the stock (security) up to 10 days.

Many factors can cause this trading suspension, including: serious concerns about a company’s assets, operations, or other financial information. A very important one is a company’s failure to keep up the required filing of periodic reports, such as annual reports and/or quarterly reports that provide the public with information about the company’s business, corporate outlook and financial performance to date.

Once the SEC decides to suspend trading, it will issue an order of suspension and announce the reasons(s) for its decision and the actual dates, but will not comment publicly on the status of the investigation during the suspension period. Stock which have been Suspended Trading are available on the SEC’s website.

The SEC can suspend trading for up to 10 days, but be aware that the SEC’s ability to continue a trading suspension indefinitely or past those ten days is strictly limited. As a result, the lifting of a trading suspension does not mean that the SEC’s concerns have been addressed and no longer apply.

Suspended Trading
Suspended Trading

A trading suspension is different than a Trading Halt


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Trading Halt

A Trading Halt is a temporary suspension of trading for a particular stock. Trade halts happens for a variety of reason, generally in anticipation of a news announcement or extreme volatility. These halts can occur for regulatory or non-regulatory reasons, and allow investors with an opportunity to evaluate the information and make buy, sell, or hold decisions. When an exchange decides to halt a stock, the other U.S. markets honor the halt.

When a publicly traded company is about to release significant news about itself or any corporate developments that could affect trading activity in its stock, it is supposed to the exchange where it is listed. The exchange will evaluate the information and decide whether or not to halt the trading on the stock. Reason why a stock would be halted include, but not limited to:

  • changes related to the financial health of the company
  • major corporate transactions like re-structurings or mergers
  • significant positive or negative information about its products
  • changes in key management individuals
  • legal or regulatory developments that affect the company’s ability to conduct business.

a trading halt can also be issued for extremely volatility, also known as a trading pause. Rapid price movement within a five minute period of time will cause a pause in the trading and allow for investors to evaluate the trading. Here are the price moves within 5 minutes that will trigger a “circuit breaker” or trade halt:

  • 10 percent price movement, up or down, for securities in the S&P 500, the Russell 1000 Index and some exchange-traded products (ETPs)
  • 30 percent price movement for other stocks priced at least $1.00
  • 50 percent price movement for other stocks priced at less than $1.00.

You can find trading halts on the NASDAQ  website and/or FINRA website  for the OTCBB stocks.

A trading halt is different from a trading suspension.

Trading Halt
Trading Halt

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Bagholder

A Bagholder, by definition, is a stock trader or investor whose investment has become worthless, coming from the term “left holding the bag”.

Generally a bag holder is stock trader who buys a stock when it is trending up, or rallying and hold the stock as the prices drops significantly with the believe that the stock price will recover, instead cutting their losses and moving on.

Many times this happens with naive or inexperienced investors who fall for comments on stock forums, or pump and dumps scams, many of which circulate through penny stock emails.

How it Happens:

You receive an email from a so called “Penny Stock Guru”, hear rumors on forums, or buy a stock that is rallying and all the sudden the stock price drops, or the company initiated an offering. Now you are negative and loosing money on the stock you purchase, sometimes trader might average down thinking they price will recover. The price doesn’t recover and the trader is now a bagholder, holding a depreciating asset, which generally will continue to devaluate.

How to avoid being a Bag Holder:

The best way to avoid being a bagholder is to cut your losses, have sell-stop limits in place, trade disciplined, and know what you are buying. Not every trader or investor is profitable, but limiting your losses and maximizing your winnings is the best way to trade stocks. You might also want to make sure you do your research and due diligence, check a company’s financial statements, SEC Filings, and stock chart trends.

If you are new to stock, do your research, learn to trade stocks and stay away from gossip, forums, and the famous “my friend said”…
Steve Nison has a great product to study on Candle Sticks that you might want to read and study before trading real money. There are also several more trusted and reliable stock mentors who can help you learn (for a fee) how to trade and provide useful information, some have great videos and information to help you not be a bagholder in the stock market.

BagHolder
BagHolder

If you were left holding the bag, don’t feel bad, just learn from it, educate, and cut your losses before they become bigger. It happens to alot of people when they first start trading stocks.


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Limit Order

A limit order allows the trader to place a price limit when buying or selling a security, stock. When placing a limit order to buy, your broker will not execute the purchase until the stock price reaching that amount, or goes below. When placing a sell order, your stock broker will not execute the purchase until the stock price goes to or above the set limit price. On either occasion your broker will not make the transfer unless it’s at your designated order price, or a more favorable price. When you place a limit order there is no guarantee that the stock price will reach your limit price, therefore the purchase or sell might not take place, and if it does there is no guarantee the entire order will or can be fulfilled.

For example, you place a limit order to buy 1000 shares of XYZ stock at $10. XYZ is currently trading at $10.23, with light volume. Let’s assume there is a seller who places either a market order, or willing to sell at $10 or below, but only offers 500 shares. Your broker will execute your order at $10 or below, but because only 500 shares were offered, you only received a partial fill. If the business day closes and your complete order was not filled, your broker might keep the order open for the next day, but might also charge you commissions for both days if the order is filled the next day.

Why Place a Limit Order?

There are several reasons to place a limit order instead of a market order, basically a limit order can prevent you from buying a stock too high or selling too low, you set the number at which you want to buy or sell.

There are also times when a stock is trending, rallying or very volatile and you still want a piece of the action, instead of buying at market and getting a fill on your order that is too high, you can set a limit order. Once again, this does not guarantee that your order will be executed.

Related:
Market Orders
Limit Orders
Stop-Loss Orders

Limit Order
Limit Order

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Altcoins

Altcoins are  an alternative coin to Bitcoin, which are all based on the same technology of the Blockchain but are designed differently than Bitcoin in some ways or another. Since Bitcoin’s success as a peer-to-peer digital currency, many others have come up with their cryptocurrency variation.

Some of these Altcoins have slight changes, such as better security or privacy, and some incorporate a different economic model and use. Some altcoins are even backed by resources or commodities.

However many altcoins don’t do anything interesting other than a minor tweak, and some have no benefit other than making the developers money.

Beware, some altcoins are nothing other than a scam, with an empty promise. Over time, many of these alternative coins have failed. That’s not to say that all of these digital coins are scams, some serve a useful purpose, and some have even been adopted and or regulated by governments.

Altcoins
Altcoins

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Active Investing

Active Investing is when you are constantly tracking your stock purchase and managing them on an constant basis looking for short term gains, as opposed to passive investing where you buy a stock and leave it in your portfolio for an length of time expecting long term gains or dividends.

Active Investment traders can use swing trade strategies, day trades strategies and even stock scalping strategies to trade market ranges or take advantage of momentum and catalyst opportunities (ei, Earning Reports, News, Articles, Biopharmaceutical results, Short Squeezes). These are highly involved strategies which require the trader to constantly be monitoring their investments, possibly even selling and buying several times a day.

Benefit of Active Investing

The benefit of active investing  is that you can take advantage of market swings and short term opportunities. Since stocks don’t trade in a straight line up or down, you can try to take advantage of the price movements to maximize gains.

The negatives are the commission paid for transactions and the time that is required to monitor your investment. Not too often can you really catch the bottom or top of a trending stock.

Active Investing
Active Investing

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Acquisition

An Acquisition of stock or Stock Acquisition is when one company purchases most, if not all, of the stock of another company to take control of the company bought out.

Companies make acquisitions for all sorts of reason; maybe they want to reduce competition or increase their footprint in a market, increase their efficiency in a market, need the product the other company provides, or want to enter a new market without having to go through the growing pains of developing the business and acquiring customers, products or staff.

When the acquired company does not consent to the acquisition, it is referred to as a hostile takeover.

Acquisition
Acquisition

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Accommodation Trade

An accommodation trade is when one trader accommodates another by entering into a non-competitive purchase or sale order. Generally this is done to in order in connection to illegal trading to cause a wash sale.

For example: Trader 1 sells stock in company ABC to trader 2 for a price below market value in order to take a tax loss, with an agreement to sell the stock back to trader 1 at the same price after the tax deduction has been taken.

Accommodation Trade
Accommodation Trading

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Anonymous trading

Anonymous trading is when high profile investors execute trades that are visible in an order book but do not reveal their identity. Anonymous trading allows high-profile investors to executive trades without revealing their identity to the public. However, anonymous trading does not allow investors to shield their trades from the scrutiny of the Securities and Exchange Commission.

In recent years, many exchanges including the TSX, Nasdaq and the London Stock Exchange have begun to offer the choice of trading anonymously when accessing the central order book.

While most traders choose to trade non-anonymously, there are many reasons that larger traders prefer to keep their participation in a market a secret. For instance, let’s say the Baker Brothers (Baker Bros. Advisors LP – famous pharmaceutical investors) wants to buy two million shares of a company over a period of time, and doesn’t what the public to know until they have completed their position; they would trade anonymously until they position is full. This will reduce the chances of traders bidding up the stock price, making them pay higher cost.

Many ECNs (electronic communication network) offer anonymous trading through dark pools (block trades) that operate off of regulated national exchanges. These Anonymous trades are generally only anonymous before and during execution.

Anonymous Trading
Anonymous Trading

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