Matt Levine, Columnist

Some Stocks Always Go Up 5%

Order collaring, meme-stock inefficiency, an earnout dispute, Venture Global, private credit trading, the basis trade and Fyre Festival II.

September 5, 2024 at 6:20 PM UTC

By Matt Levine

Matt Levine is a Bloomberg Opinion columnist. A former investment banker at Goldman Sachs, he was a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz; a clerk for the U.S. Court of Appeals for the 3rd Circuit; and an editor of Dealbreaker.

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Let’s say that you are a market maker and you trade a bunch of small, dumb, thinly traded stocks. The last trade in Amalgamated Cannabis & AI Inc. was 20 minutes ago; someone bought 100 shares for $4 each. There has been no news since then. You have to quote a price at which you would sell 100 more shares of Amalgamated. What price should you quote?

There is, weirdly, an answer. The answer is $4.20. The way you compute the answer is (1) you take the price of the last trade ($4) and (2) you add 5%. Why is this the answer? Well: