The Spam Diaries

News and musings about the fight against spam.
 by Edward Falk

Friday, April 06, 2007

Yes, you too can make money on pump-n-dump stocks

Something I've always suspected: ZDNet had an article last month in which Ryan Naraine described how he made 25% on paper in five weeks by shorting pump-n-dumped stocks.

The theory is simple enough. Pump-n-dump makes money for the spammers because the spammers buy the stock cheap, convince a bunch of suckers to buy it, and sell their own shares when the price goes up. The price then goes back down and all those suckers lose their money.

Ryan Naraine's technique was pretty obvious: when you get the spam, you assume it's too late to buy the stock before it goes up, so you short sell the stock and make a profit when it inevitably collapses.

Of course, this is all theoretical and probably won't work in practice. The trick here is to actually find the stock to borrow. Since the pump-n-dumpers specialize in Pink Sheet stocks, it may not be so easy. Naraine's profit was on paper only; I don't know of anybody to ever do this for real.

6 Comments:

Anonymous King said...

I've wanted to try this for years but never had the nerve. Not to mention it seems like it could get you a visit from the FTC.

1:46 PM  
Blogger Spam Diaries said...

Yeah I never had the nerve either.

As others have pointed out, you need to be able to borrow a stock in order to short it. Where are you going to borrow a Pink Sheet stock?

2:40 PM  
Blogger Justin Mason said...

Yeah -- what I've heard is that it's pretty much impossible to make any money doing this, due to the mechanics of how stock shorting works in reality.

12:45 PM  
Blogger Smiley Heart said...

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8:00 AM  
Anonymous Anonymous said...

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6:45 PM  
Blogger Twitter Buzz said...

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2:19 AM  

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