A Primer on Pumping and Dumping: How Hedge Funds Do It and How Others Might Profit

Authors

  • Greg Samsa

DOI:

https://doi.org/10.14738/abr.98.10747

Keywords:

covered call options, investment returns, pump and dump, social media communities

Abstract

Pumping and dumping occurs when the price of a stock is artificially inflated and then drops.  Here, we illustrate how hedge funds can accomplish pumping and dumping, and argue why this strategy is likely to be successful for them.  We illustrate why writing a short-term in-the-money covered call option might constitute an informed speculation when pumping and dumping is suspected.  In contradistinction to the usual practice, estimating the returns of a strategy which is based upon the predictable characteristics of pumping and dumping would be best tested prospectively, and social media communities might fruitfully participate in such research.

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Published

2021-09-04

How to Cite

Samsa, G. (2021). A Primer on Pumping and Dumping: How Hedge Funds Do It and How Others Might Profit. Archives of Business Research, 9(8), 175–180. https://doi.org/10.14738/abr.98.10747

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