What is a shelf offering?
And how do we, as day traders, use that to our advantage when we are trading penny stocks
that gapped up premarket?
Today As a follow up to my last how to read SEC filings video, we will be taking a closer
look at the stock $NERV and its filings.
So by the end of this video, you’ll be able to do this kind of quick 10 min research before
deciding whether a penny stock runner is a long, or, in this case, a conviction all day
short.
If that sounds like a topic that interests you, make sure to smash that like button.
With that like button smashed let’s jump right to SEC filing S-3.
Form S-3 is an official document companies have to file in order to register new shares
to do an offering.
It’s usually the first form I look for when I am trying to see if a sketchy penny stock
company will have any overhead supply of debt securities or atm offerings.
The second form after that is form 10K which is the financial statement.
And how you get here is through SEC edgar, and search up the ticker, in this case on
Monday June 24 the hot stock of the day, NERV.
This stock gapped up with some fluffy news.
They are announcing some primary and secondary achievement.
You know the same usual bs.
This isn't an FDA news.
They are just using this PR to pump their share prices up from $4.30’s the night before
to $7.60s premarket monday morning.
And if you’ve been watching my past videos on these penny stock PR pumps, you know these
companies always have an alternative motive.
And we’re going to find out why
So once I see the gap up $NERV, I went to do some quick digging in the SEC filings.
Once you’ve looked up NERV.
And look for the latest form S-3.
Let’s take a look at this S-3 for $NERV.
And bam, right here, this is a registration to raise $200 million dollars for this company.
Thats quite a substantial number.
And whenever you see that a penny stock company has an S-3 for that big of an amount.
Thats a red flag right there.
I always go to the “about this prospectus” area and rea through this really fast.
So its here that we see this is a shelf registration.
It means that the shares registered through this shelf totaling up to 200 mil, can be
sold by this company partially in any given time within the next three years
It’s important to do more search to see if this is actually a shelf that can still
be exercised.
Ill show you in a little bit.
It sounds complicated but it's actually very simple I promise.
So inside the prospectus if you read further, it’ll tell you the kind of company NERV
is, which we know it’s a biotech company, and biotechs pharmaceuticals, are cash burning
machines.
Because first of all, they are often not making any money while they are developing their
drugs to be FDA approved and be sold.
And all those trials and tests their drugs have to be pushed through in the pipeline,
cost a lot of money.
And second of all, biotechs and healthcare companies in general, have the highest paid
C- suites and board members.
More than most other sectors.
So that’s why biotech penny stocks especially, are always poor for cash.
They have expensive trials to pay for and on top of that, they’ve got to pay fat dough
to their executive salaries and bonuses.
So whenever you see them release PR to pump shares up, they are likely setting it up for
an offering.
Not always, again nothing is 100% guaranteed in trading.
But knowing this and confirming the thesis in the SEC filings will give you that edge.
I bet the guru DVD’s you paid thousands for didn’t teach you this.
So make sure to drop me that liek button if you haven’t already, I’d really appreciate
it!
But there's more in this S-3.
Besides telling you the total amount of money they are allowed to raise, what the company
does, this filing will tell you the kind of securities they are allowed to sell through
this shelf registration.
And right here, on this prospectus.
$NERV is allowed to sell common stock, preferred stock, debt and warrants.
All these kinds of securities up to $200 million dollars.
And to be more technical about this kind of shelf registration.
This is what's called a mixed shelf.
Meaning this shelf does not limit this company to sell just their convertibles, or just common
stock, or just warrants.
They can literally sell anything.
And they do list out those securities in detail and how much they’re worth in the rest of
this form and in 10-K, which I have another video going over that in detail.
So why mixed shelf.
If they’re dump on investors and unsuspecting buyers while they conveniently pump the share
prices up.
It makes sense that most penny stock companies will not want to limit themselves.
As long as they can raise that $200 million dollars registered this shelf.
And that's why it's called a shelf.
They filed the S-3.
Got the shares registered by the SEC.
Paid the registration fee.
And once its deemed approved for the amount of $200 million.
They can literally put those registered shares on a shelf on hold.
The company can decide any time down the road when they are going to sell those shares.
And literally just dump on buyers.
Ok i’m having too much fun doing this now, instead of going out to party on a long weekend
im filming myself holding a shelf.
That brings us to the next point, how we know the S-3 filed can actually be used.
Because these forms, once filed, they need to be reviewed by the SEC. and that can take
anywhere from 10 days to a few months depending on the situation and whether the company meets
the guidelines.
It's only after the SEC reviews the registration and approves it, that the S-3 becomes in effect.
So here is how you check whether this S-3 is in effect.
You go to SEC edgar again.
Once you are in the filing for NERV, find the most current S-3, which was the one we
were just looking at.
Go to the file number on the right side and click into it.
Here it is.
If the SEC allows them to use this mixed shelf, it will say EFFECT on the top right here.
If it’s still under review and not in effect.
You wouldn’t see it.
This is very simple but very important to check.
Because not all shelf can be used.
So now we know $NERV can indeed use this shelf and sell for up to $200 million.
There is actually one more thing in this S-3.
And I mentioned this in the last video.
ATM offering.
at the market offerings.
And it turns out, in addition to the $200mil registered shelf, $NERV also has a deal with
Jeffries LLC to sell $50 million dollars worth of common stock.
At the market.
Meaning they can execute that sell any time during market hours.
Jeffries LLC is their underwriter in this offerings deal.
Jeffries is one of the many issuers these sketchy companies like to deal with when they
decide to do offerings.
And the underwriters will get paid fees, and a lot of times with preferred stock that they
themselves can sell during the offerings.
See win win, for the company and the underwriter, lose big, for the buyers.
So whenever you see Jefferies name on a penny stock companies’ SEC filings, that should
raise some red flags, again not always.
Theres a few more usual names you need to be aware of, and if you stay till the end.
You’ll find out.
All that digging, looking into the most current S-3, seeing if there's a shelf registered
and for how much, if there's an ATM offering and whether the form is in effect.
Can really quickly be done within 10 minutes just by using keyword search.
I go through in further detail into the balance sheet and whether the company needs to raise
more capital or not in the last SEC filing video, so make sure that check that out if
you haven't already.
This video specifically, is for me to determine whether a stock gap up premarket will hold.
Basically whether I should lean into this gap up long or short the entire thing down.
And really you can argue that you don’t need to do all that SEC filing digging to
trade this stock $NERV intraday.
That's true, but finding out about the $NERV $200 million shelf and the $50 million at
the market offering is what gave me the conviction to short this stock all the way down.
And add into the winner with size when it breaks the premarket low as per my gap up
strategy.
And really that's all I use SEC filings for, specifically S-1, S-3, and the 10-K. I use
it for short term day trading and deciding whether a stock that’s had a run up, have
any overhead supply, if it does like YRIV and NERV, then I want to be short biased,
or if I long, it has to be a scalp and I would never hold the stock long overnight and risk
being dumped on.
Now, if the biotech penny stock has a lot of cash, no need to do an offering, and actually
has good fundamental news, then I would consider it long.
That’s exactly what I said about $ZYNE in the SEC filing video two months ago.
And I said if that stock can hold $8 then i would consider swinging it long.
Since then $ZYNE has ran up to a high of $16 and it’s currently trading around $13.
I did swing it long, but of course Im that idiot who sold too early at $11.
So these fundamental research, helps with conviction when day trading long or short.
But remember, you can be fundamentally right, but technically wrong.
Thats why it’s so important to enter your trades according to your own technical setups
and still have the proper risk management.
And how exactly should you manage your risk, especially with a small account?
Well you’re in luck.
I want you to subscribe and ring that notification bell.
Because in next week’s video, I will be going over day trading risk management, especially
if you have a small account.
And I will be doing a special giveaway to a few of my subscribers who watch and comment
within the first few hours after I’ve posted the video.
There will be more details about the giveaway in that video.
And i really want to give back to my loyal subscribers who are always there watching
first, smashing those like buttons and leaving me such thoughtful comments.
I do read them all and I really really appreciate it.
That’s why I always make sure to spend 8-12 hours making these videos so its 99.9% value,
and 0 hype, oh and maybe 0.1% of bad jokes.
So you’re gona want to have that notification bell enabled to be the first to see the risk
management video and enter the giveaway!
And no, I haven’t forgotten about those underwriters.
Besides Jefferies LLC, the other two underwriters these penny stock companies love dealing with
for offerings, are Maxim, and H.C.
Wainwright.
So whenever you do a keyword search and see those names in their SEC filings.
Somethings up!
Thank you guys for watching as always.
I’m the humbled trader.
And I’ll see you next week.