No one can predict the future with stock prices, but what we can do is predict the odds. Short sellers with AMR Corporation (AMR), aka American Airlines, have looked at the numbers along with the share price and are trying to short every last share they can get their hands on. On December 19, 2011, AMR shares were listed on the NYSE Threshold Securities list. Few indicators give a better outlook and expected price move better than the Threshold Securities list for NYSE and Nasdaq trading markets.
In my first recent article about AMR (click here to read), I wrote about the expected gap down of about 60% in a day. It would appear today was the day with the large gap down in price, although not a full 60%. I would expect shareholders are less than pleased. An announcement of share de-listing on the NYSE prompted the selloff. No longer will market participants be able to buy and sell shares of AMR on the NYSE after Thursday January 5th, 2012, or before.
This is the last flight out before the storm hits even harder. Many investors and even traders are not set up to trade on the pink sheets, over the counter market. If you are not able to trade shares trading on the OTCBB market your last and only hope of savaging capital from the shares is to get out now (unless somehow the shares survive the bankruptcy process, something the smart money is clearly telling you will not happen). Because so many do not participate in the OTCBB market, it will be more than difficult to get new money to look at AMR. As a result one can expect another large move down in price within the first few trading days.
If you own shares and are not going to sell, you can at least still buy portfolio insurance protection with put options. The February $0.50 strike price put options are trading for about $0.20 each. If the stock does somehow throw a hail-Mary and score a touchdown causing the shares to spike higher you're not losing much. On the other hand if the stock sinks into single penny digits, you will recover some of the loss.
In my most recent article about AMR (click here to read) I wrote about loss aversion and cutting losers short. If you're still on the fence about what to do with AMR, please be sure to read the article as you will likely find it helpful. There are no rules that say you cannot buy the shares again if you wish. For those considering buying a "lotto ticket" with AMR, I would highly suggest either the January or February $0.50 strike price calls. You can buy January for $0.02 each and February for $0.04 each. A relative same number of shares in play will lose a lot less money if the trade does not work out (which it likely will not), and will still have the ability to make a large gain if it does.
Do you have a company you want me to review? Let me know in the comments below.
I use a proprietary blend of technical analysis, financial crowd behavior and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. You may want to use this article as a starting point of your own research with your financial planner.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.