Sometimes, a move is all about float.
The pervasive money-maker in the market right now is the squeeze. Traders, and I won't pin it all on retail, hunting out small-cap, low float stocks that can be pushed far and fast to the upside. Sadly, this approach becomes like a pyramid scheme, because the last buyers are left holding the bag.
That being said, there can be opportunities, which brings us back to Urban One.
The stock caught fire as a movement swept through social media to support stocks that reflect Black Lives Matter. Again, I'll avoid the politics behind this reasoning for buying (and potentially breaking) a particular stock. That's not the focus here. Our focus is how can we profit from a trade like this in the future.
There are two charts here for Urban One, because the company has two different classes of stock, UONE, the class A shares, and UONEK ( UONEK) , the class D shares. The only difference between the two is voting rights. They actually have two other non-traded classes, as well, but I digress.
Both UONE and UONEK had a strong day Monday, but it didn't quite catch the mainstream until Tuesday. That's when UONE opened under $8 and rocketed to $40. UONEK, which has historically traded for a discount, also moved higher, but its move peaked at $4.50 from $1.20. UONE closed around $28 after a long afternoon halt, while UONEK settled around $2.75. It almost looks like a 10 to one ratio exists for some reason. Hint -- it doesn't.
Again, the only difference in the shares is voting vs. non-voting.
So, why the difference in the moves? One word: float.
UONE, class A shares, consists of 1,582,359 shares based on the last filing.
UONEK, class D shares, consists of 38,058,422 shares based on the last filing.
UONEK has 25 times the available shares compared to UONE, so if you want to move a stock, you want to go after the lower float. Everything comes back to the idea of supply and demand. If, suddenly, a bevy of retail traders come after UONEK, it may have little impact, even if it is 500,000 shares, but if suddenly a group comes after 33% of a stock's shares, price is going to react. It's going to squeeze.
An interesting phenomenon followed, and this taps into psychology. After UONE closed, shares continued to sell off, but UONEK rallied? That doesn't make sense given what I just said about float, but after float, the second thing we need to consider comes into play: price.
Traders suddenly saw "value" in the $2.75 price tag on UONEK vs. the $28.50 price on UONE, especially since there was no difference in the fundamentals of the company supporting both classes of stock. In other words, traders moved to the cheaper of the two shares. On Wednesday, UONEK spiked to $6.75. It actually traded close to $10 in the pre-market, while UONE opened at $22, down $6.75, and fell to around $13.
The UONEK bounce didn't last as it retraced all the more higher on the Wednesday by the time we hit the close.
Both shares are at it again to the upside Thursday. Fundamentally, there's no reason for the moves. One might argue it's cheap from a price-to-sales ratio, but the company is saddled with debt, losing money, losing sales, and operating with razor-thin operating margins. There isn't anything justifying a tripling of the market cap.
I see a lot of similarities here as we see with the warrant and stock relationship in the Special Purpose Acquisition Corporations (SPACs). Traders chasing the warrants once the underlying stocks begin to surge higher. The idea is a cross between leverage and perceived value.
The opportunity for traders is to dig a little deeper if you see an unknown name across your scene on the big movers list or mentioned repeatedly on your social media screen. That doesn't mean jump in with your eyes closed, but if you see a disconnect, it may translate to a short-term trading opportunity. I cannot stress how important the "short-term" part of that statement is in the current environment. If the trade doesn't play out quickly for you, then move on as we've seen lots of outsized moves as of late.
