Key points:
- Tanfield is up 60% by some tickers
- But is it usefully up by 60%?
- Is this something we can trade or is it lost in the spread?
Tanfield Group (LON: TAN) shares are up near 60% in London this morning by some tickers. Is this some sort of revaluation or momentum trade that we should climb aboard? Or is this a near random movement in a tiny stock which we'd find near impossible to profit from?
Sadly, it looks like the second is the truth here, but then stock market advice that didn't include what not to trade wouldn't be good stock market advice now, would it?
In terms of what Tanfield actually does the major activity seems to be having legal snits. At least, that's the implication of their past few releases to the market. Legal proceedings over Snorkel Investment, an update on Snorkel and so on. There's a JV called Snorkel, which does reasonably substantial business. There's at least one court fight over who really owns the JV and so on.
Also Read: What is Futures Trading – A Case Study of the Wheat Market
Well, that's not a terribly exciting investment, although it could be seen as one with a high reward if the court decisions go the right way. Perhaps there's some distinct change in the legal proceedings, which means that we'd better climb aboard for the ride or something? Tanfield could substantially benefit after all.
Or, there's another way to look at this. Yes, Tanfield shares might well benefit substantially from a legal resolution. But we've no particular information that one is closer – nor further away. All we've really got is that ticker saying that the Tanfield share price has jumped 60%. If we can work out why that happened then we can make a decision upon Tanfield itself and momentum trades and so on.
The answer is that the spread on Tanfield shares is wide. Bid/Offer is 1.50 to 2.50. There are very few trades – two yesterday, the 14th, two in the first 15 minutes after the open this morning, the 15th. This means that the reported price of a trade can be 1.50 – someone selling into the market maker – or 2.50 – someone buying from that market maker. The actual price might not move at all – 1.50 to 2.50 as that spread – but the reported price can bounce around just on whether the last trade was a buy or a sell from the investing side.
That is, we're talking of a stock of such low liquidity that whether the last trade was a buy or sell is what is triggering large changes in the reported midprice. At which point as stock traders we, of course, know what to do about Tanfield.
It would require at least a 60% price move for us to be able to beat the spread here on Tanfield shares. That's just not an attractive option for a share to be traded. Under most likely share price movements, any potential profits would simply be swallowed up by the market makers' spread. So, this just isn't a share that we want to be trading in. Of course, if we really knew what the outcome of that Snorkel litigation were to be then perhaps, but not only does no one know that at present, it would probably be inside information if we did.
