Yesterday, Atossa Genetics (ATOS) traded up as much as 389% from Wednesday’s close. The company announced that one of its drugs had received a “safe to proceed” letter from the FDA as a treatment for post chemo treatment in breast cancer patients.
Don’t worry about the details, the market read this as “Atossa’s been approved by the FDA for a breast cancer treatment, to the moon.”
Now, did you own any Atossa stock Wednesday at the market close? No, you didn’t. Did I own any Atossa stock? Heck no. Do you know anyone that did own any shares of this beaten down, multiple time reverse splitting so it could remain listed, piece of junk stock? Of course not.
If you’re an active trader could you have made money on this stock yesterday, after the news broke? Absolutely.
It traded a classic pattern known to any day trader, gap up from $1.51 the day before to $5.50 at the open. Pullback to $4.50 , in the first half hour of the day (so market makers that had shorted to retail at the open could cover their shorts, it’s good to be the king).
A bounce off of $4.50 back to around $5.50 and then a flat day, in the $4.50 to $5.50 range. Until, the magic 2pm hour when around 2:20pm the stock took out the highs of the day, pulled back slightly to shake out the weak hands, and then ripped higher to the $7.39 level, its high of the day.
At a minimum, a halfway decent day trader should have captured around $1.50 on the trade, or $5.50 to $7, for a 27% return. Not bad for a day’s work.
BUT, what if you’re active trader self had said, when you saw the stock up so much pre-open, “Self, does this thing have warrants?”
What do you think the answer is? Well, it wouldn’t be an article about warrants if… And, what do you know, there they are, ATOWW. Exercisable at $4.05 for one share of common.
Before doing any trade or investment, the warrant question should be like a “Got Milk?” ad in your brain. “Got Warrants?”
So how would our halfway decent trader have done if they had recognized ATOS had warrants?
The warrants traded in the $1 to $1.20 range almost the entire day, until that 2pm run started. So, let’s say our trader bought the warrants at $1.20.
When ATOS traded up to $7.39 the warrants traded up to print at $3.10. But our trader is only halfway decent, so NO WAY she got the high print of the day. Let’s say she sold at $2.25, to be conservative. That’s an 87.5% gain. I’ll take it over 27%.
Are warrants often more thinly traded than the common stock? Yes. Are warrants often harder to get fills in than the common stock? Yes. Are the spreads often wider in warrants than in the common stock? Yes. Are the returns better in the warrants than in the ripping common stock? Yes.