Tuesday, July 17, 2012 11:49:48 AM
How does a stock get to 0.0001?
So you may be asking yourself,
"How the heck does a stock go this low?"
Well, the answer to that depends on the stock,
but generally it is due to dilution,
and the subsequent supply of shares outpacing the demand for them.
If nobody is willing to buy the stock,
and the selling continues, the stock goes down down down,
all the way to 0.0001… and then,
when nobody is willing to buy,
not even at 0.0001, the bid disappears.
These are "no-bid" stocks,
and typically their asking price, or offer,
then becomes 0.0001.
So why would anyone want to buy a Trip-Zero stock?
It's all about the up-tick...
After hearing this story of dilution and never ending spiral
to 0.0001 with no bid, you may be totally writing off the trip-zero stock.
If you are looking for a safe investment,
then that is your best bet.
Stay far, far away.
However, the lure and potential of these stocks
lies back with the basic stock market rule mentioned above.
If the lowest share fraction tradable by a retail investor is 0.0001,
then that is also the smallest price increase
that a 0.0001 stock can have.
So if you buy the stock at 0.0001,
and the price goes up just one tick to .0002,
you've just doubled your money! This is the potential,
the leverage, behind these trip-zero penny stocks.
Now, imagine if you were able to catch a real runner,
grabbed shares at 0.0001 and were able to sell them at 0.0010. That's a 900% profit, or a "10-Bagger".
Every so often it happens,
and that is the golden lure behind these stocks.
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