Why Bank of America is the new Citigroup

Instead, Bank of America is the stock of the moment for high-frequency trading, the supercomputer-driven buying and selling that barely existed a few years ago and now accounts for as much as two-thirds of U.S. trading.
The bank’s single-digit stock price and flood of shares on the market — three times as many as its nearest big-bank competitor — make it an attractive target for hedge funds and banks that employ high-powered, computerized trading.

For computers to move in and out quickly, there must be enough shares available to trade. Bank of America has a truckload — 10.5 billion shares outstanding, compared with 3.8 billion for JPMorgan Chase and 2.9 billion for Citigroup.

Immagine if there were 9.5B shares of Apple to move around. The high frequency traders would have a field day!

awcabot - 10 February 2012 07:54 AM

Why Bank of America is the new Citigroup

Instead, Bank of America is the stock of the moment for high-frequency trading, the supercomputer-driven buying and selling that barely existed a few years ago and now accounts for as much as two-thirds of U.S. trading.
The bank’s single-digit stock price and flood of shares on the market — three times as many as its nearest big-bank competitor — make it an attractive target for hedge funds and banks that employ high-powered, computerized trading.

For computers to move in and out quickly, there must be enough shares available to trade. Bank of America has a truckload — 10.5 billion shares outstanding, compared with 3.8 billion for JPMorgan Chase and 2.9 billion for Citigroup.

Immagine if there were 9.5B shares of Apple to move around. The high frequency traders would have a field day!

Hey, leave Sponge alone!

Yes you baited me.

I don’t care that big trading houses make a boat load of money with high frequency trading.  Once should buy and hold for years, so manipulation short term is irrelevant

Yes it will royally screw options traders who will be found with their pants down as the stock will continue to move up and down 5-15%. 

To me option trading is similar to those why buy houses to make a profit instead of living in them.

A split will increase enough demand for the stock that we will see new money coming in that will easily offset any short term manipulation.

If anything it may help those those smart option traders by increasing volatility.  They will need to learn to adapt and spend more time in front of the comuters instead of enjoying the great outdoors knowing their stock will do fine.

From the linked article;

The low price put it in the sweet spot for high-frequency trading. If a high-frequency operation is trading blocks of 100 shares at a time to capitalize on a 1-cent change, there’s a lot less risk working with a $5 stock than a $500 one.

If this is true then AAPL should be hard for HFT to play with as it is priced currently.
Is this actually the case?

One potential benefit of a split could be a change in options intervals. Right now strikes are available at $5 intervals, equal to a 1% move. If the split were 10 for 1 and new options were issued in $5 intervals, that would be equal to a 10% move between strikes.

If this is “another” reason, what are the other reasons? Personally, I see very little, if any, downside to a split, and I see very little, if any, upside to a split. So, I say just do it because why not. Sure, it costs a bit of money to get it done but that’s immaterial to Apple at this point.

K447 - 10 February 2012 10:43 AM

From the linked article;

The low price put it in the sweet spot for high-frequency trading. If a high-frequency operation is trading blocks of 100 shares at a time to capitalize on a 1-cent change, there’s a lot less risk working with a $5 stock than a $500 one.

If this is true then AAPL should be hard for HFT to play with as it is priced currently.
Is this actually the case?

There is probably more misinformation spread through the media about HFT than there is about AAPL, and that’s saying something.  First off, in regards to the price of a stock and HFT activity, there is a connection.  It’s a result of SEC and other taxes placed on each transaction.  Most of these taxes are proportional to the amount of the transaction, such that if you were to buy AAPL at 493.10 and sell it at 493.11 over and over again, the taxes would be greater than the one cent per share profit.  If you were to do this on a $20 stock, the taxes would be much smaller than the one cent per share profit.  Therefore, making a market one cent wide in DELL is at least potentially profitable, while in AAPL it is guaranteed to lose money, so no one does it.  It doesn’t have anything to do with the risk associated with 100 share lots, 100 shares of AAPL is nothing risk-wise to a HFT firm.

Apple II+ - 10 February 2012 10:48 AM

One potential benefit of a split could be a change in options intervals. Right now strikes are available at $5 intervals, equal to a 1% move. If the split were 10 for 1 and new options were issued in $5 intervals, that would be equal to a 10% move between strikes.

Why is split good for option traders?  1% should be better for option traders.

Mace - 10 February 2012 02:10 PM

Apple II+ - 10 February 2012 10:48 AM

One potential benefit of a split could be a change in options intervals. Right now strikes are available at $5 intervals, equal to a 1% move. If the split were 10 for 1 and new options were issued in $5 intervals, that would be equal to a 10% move between strikes.

Why is split good for option traders?  1% should be better for option traders.

Depends on the trade. But for AAPL bulls if options keep AAPL bound to a range between strikes most of the time, a 1% move is not as good as a 10% move.

Apple II+ - 11 February 2012 06:52 PM

Mace - 10 February 2012 02:10 PM

Apple II+ - 10 February 2012 10:48 AM

One potential benefit of a split could be a change in options intervals. Right now strikes are available at $5 intervals, equal to a 1% move. If the split were 10 for 1 and new options were issued in $5 intervals, that would be equal to a 10% move between strikes.

Why is split good for option traders?  1% should be better for option traders.

Depends on the trade. But for AAPL bulls if options keep AAPL bound to a range between strikes most of the time, a 1% move is not as good as a 10% move.

Thank for clarifying your thought.

While I agree a split means nothing in real terms, in perceived terms it means something.

What is the potential upside to AAPL? Ask 100 people tomorrow the probability that AAPL will double in the next 12-18 given it’s recent 118% growth in earnings in Q1.

Compare that figure to the answer to the same question after a 10:1 split. Without any question, you’ll get a much higher number because they will ‘feel’ it’s much more attainable to double from $50 to $100 than from $500 to $1000.

How many companies are out there with almost 10 billion shares?  Just wondering.

I thought its all relative and makes no difference to own 1 share at $1000 or 100 shares at $10. so who the heck is investing their money into stocks, but will not because a certain share price is “too” high”??? i didn’t think that people really though like that. Then I asked a few “average” people at work who i knew bought stocks, and guess what they said… “oh no way, appl is way too expensive, i usually only buy stock that are under $100” ...... they actually exist

And are sadly poorer for it.

Particularly when these days, you can at least play the market with <$1,000 and can do quite a bit with a few thousand.

I wonder if they bought AAPL when it last was under $100.

I continue to oppose both a split and a dividend.

I repeat myself, so I’ll abbreviate:  The high share price keeps us out of the DJI, is good for options bid- ask spreads, reduces price volatility, etc.

Dividends (in the U.S.) are taxed twice (three times if you count the tax on the income from reinvesting the proceeds.  Dividends cannot be timed; they come quarterly whether it is to the investors advantage or not.  The tax rate on dividends is set to rise after this year.  (If someone thinks a dividend will enable some new mutual funds to invest, fine; make it .01 per quarter.)

Buybacks are far superior. They are tax efficient.  And the investor chooses the timing of his return.