I began to short MCP.A (MCP preferred stocks) a week ago.
The reason is as follows:
1. Since MCP.A is converted to 2 common stocks, even when considering the large dividend payouts, MCP.A's price is definitely overpriced relative to MCP.
2. MCP recently have a serious down trend and there is no positive news that the company is going to do better.
3. The market (S&P500) have reached one year peak, it looks like
it is hard for the whole market to continue to move up.
However, in this week, MCP.A does not go down but even jump up a little bit. And today 11 am, the stock just jump from 40.75 to 41.88 in a minute, a single move of 2.6%. I lost 1000 dollars in just one minute.
The bad thing about illiquid stocks is that the prices jump instead of move continuously so that it leaves less time for traders to react.
Although I still believe in the long term, MCP.A is going to come down.
The question is that do you have enough cash to deal with the short-term volatility. And the illiquidity makes it worse in the sense that it is harder for traders to react to the short term volatility.
The lesson I learned is that don't deal with the illiquid stocks unless you have a well thought long-term plan and enough cash to support that.