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  • lemonyelow1 lemonyelow1 Jun 2, 2009 12:31 PM Flag

    Addition to the Russell 2000

    I've tried to play this game for several years and lost a fair amt of money in so doing.

    There's plenty of papers discussing the impact, but this is a classic case of an "efficient market" working its magic.

    That is, folks with brains and software to go with their (big) bux did the analysis - as a guess - 6-9 months ago and placed their bets. IN FACT, since this is akin to arbitrage for really sophisticated people, if they sensed or sense that the "bounce" has been baked in, they go from long to short (if they WERE long at the time).

    Plus, you have wildcards like insiders "unwinding," especially this year. Imagine you're a BMRC director with 15,000 shares (or a key employee or relative of same) - we all know that it would take 6 weeks to dribble that out if you didn't want your last few lots to go at $22 (on a hypothetical "sell 15K at the market" order).... Now, of course, you can "expect to" sell into strength.

    There may be opportunities here - but I'm guessing that the smartest non-wired play would be "straddles" (probably 5 or fewer of these stocks HAVE listed options), because buying equal amounts of puts and calls MIGHT let you profit, given that many of these stocks will have a 10% move [UP OR DOWN!!] that day. (Of course, the options may have prices and spreads that reflect this!)

    Actually, there is one way to take advantage of this - just w.r.t. BMRC - buy on weakness, before or after the rebalancing, because there should be some "decent liquidity" for a change. A year ago, on a $25-26 quote, you were more than likely buying from a market maker and immediately "down" 4%.

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