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RULE MODIFICATION: PLEASE READ:

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lentinman Member Profile
 
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lentinman   Friday, 01/27/06 02:45:36 AM
Re: None
Post # of 2230 
RULE MODIFICATION: PLEASE READ:

This is a relatively simple rule change, but it is designed to make sure that nobody can take advantage of screwy bid/ask scenarios - such as we had with ISSG yesterday. Simply put, if that became commonplace among the contestants, the average return by the group would be skewed, and not defensible. Also, the winner could easily be someone who gained large percentages on the Buy, the Sell and the Freeze simply because of how stocks ended the day on either the bid or the ask when the bid/ask spread was huge. Therefore, this new rule is designed as a deterrent against anyone choosing to do that. There will be no future benefit to watching for extreme lows or extreme highs on the close unless it is is normal trading.

Here is the rule:

If the next day's first trade of a stock (buy) is higher than the previous close on no news (as was the case with ISSG yesterday), then the buy price must be at the first trade (higher) price. If the next day's first trade of a stock (sell) is lower than the previous close on no news, then the sell must be at the opening (lower) price.

However this rule ONLY goes into effect if two things are true: 1) the difference was over 15%. 2) The closing price on the day the SELL was made must be the HIGH of the day or the closing price on the day the BUY was made must be the LOW of the day. Otherwise, it is irrelevant. That way we don't have to worry about every trade.

In fact, if the rule was in effect, nobody would likely do what Guy did because there would be no advantage to doing it. Therefore, the rule would hardly ever come into effect, only to serve as a deterrent. But, as a deterrent, it solves a potentially horrible problem.

Here is an example: WXYZ has a bid/ask of .30 and .50. The opening price for it in the contest was .50 and most of the time it is .50, however it closed at .30 today. Just before the close someone puts in a trade for this stock at .30. Obviously, this is misleading. The next morning it begins trading at .50. That person would have (before the rule change) been able to gain 67% on the stock - from 30 cents to 50 cents. As we all know, this is a meaningless and bogus 67% gain and should not be allowed to happen.

By having the new rule, and assuming NO NEWS, the person would have to pay .50 for the stock. That would deter any desire to trade simply because of bid/ask/spread anomalies.

Here is one more example. Let's say that instead of .30 and .50, it is .45 and .50. In that case, the person gets the stock for .45 (not .50) because it is less than 15% (technically, 11%).

The point is not to interfere with anyone's desire to buy or sell whatever they want, but rather to eliminate situations that could not have existed in real life.

If the contest is going to have validity as to our abilities, then it must translate as close as possible to real-life situations.

Len


Warren Buffet: 5 minutes and 17 seconds of pure, unadulterated, bulletproof, flawless logic.
http://www.youtube.com/watch?v=QLD0p1QpcI8

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