A Trip Through the Badlands

A tense tale from the frontlines of after-hours trading in Yahoo!.
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Join me in a trip to the Badlands, the strange after-hours market in stocks, the last great trading frontier. I was there tonight, alone, armed only with an


machine, intent on trading



after the conference call was over.

I liked what I heard. Oh, it wasn't only the guidance and the firm tone of management, or the buzzwords and the letter-perfect execution. What I liked about it -- and what I would despise about it if I were short -- were the effusive congratulations offered by each analyst before questioning the company. That's a security blanket that makes you want to take stock with gusto.

Except that's not the Instinet game. After-hours trading is an art form, one that exists at a level that rivals the most rigorous poker games for their bluffing and outrageous bidding. Your confidence in your hand must be supreme, and your judgment of your nameless and faceless opponents, both on the buy side and the sell side, must be perfect.

For those of you who have never traded after-hours, Instinet is a customer-to-customer market in which you can advertise where you want to buy and where you want to sell, just like in Web trading. Tonight, as the Yahoo! conference call drew near its conclusion, I wanted to buy 2,500 shares.

On the screen was someone who wanted to sell 1,000 shares at 214 and someone who wanted to buy 1,000 shares at 210. That's a pretty typical market for after hours, ride enough to drive a Peterbilt through, yet so thin as to be impossible to get anything "real" done. As much as I trade after-hours, I find myself constantly on the defensive, and rarely as confident as I would like to be, and I regard myself as being fairly good at the game.

My goal: to get 2,500 shares in as cheaply as possible. First, we type in a 211 bid for 1,000 shares. We wait a minute and nothing happens. But someone offers 1,000 shares at 212. Here's the first decision. Do I take it, knowing that the call is going well, or do I wait to see if the seller hits me?

Before telling you what I did, picture this. There are maybe 25 people looking at this trading. If I take it, that will be a sign, an aggressive sign, that someone is betting this stock is going to go higher. If I wait, and I get hit, that might be a signal that someone believes the stock is going lower.

Now, add another dimension, the short sale. You can short after-hours without waiting for a higher stock price (a plus tick, as it is known). So, it is possible to be hit by a short-seller and have that short-seller create an impression that this stock is going lower in after-hours trading.

I chose to pounce and take the thousand at 212. Immediately, right at that very moment, the seller offers 2,500 shares at 212. (Or at least I think it is the same seller, as you can't tell.)

Ooooh, I think to myself. A gamesman. The guy wants to make the stock look heavy. That's a master ploy, meant to both frustrate the buyer and establish the market as one that doesn't lift. Very demoralizing for the buyers. Great for the shorts.

I bid 211.5 for a thousand.

Whack. I'm hit. Brutal. Now the pattern has been established. There are sellers, they want out. I am cannon fodder, I think to myself. Maybe I am wrong. Maybe the call's not that good. Second-guessing. Maybe a downgrade coming?



deal not closing in time? Dot-com run over? (Told you you had to have confidence to play this game.)

I bid 210 for a thousand. For three minutes, nothing happens. So I get more bold. I move up to 211 for 1,000. Nothing. Nobody whacks me. I am like the mouse jumping out for the cheese, and the cat/seller seems to be asleep. Next I take the 212 offering for 1,000 shares. Now I have bought more than I want, but that's okay, because I like the stock. I feel like the cheese is mine. Gorgonzola.

Next thing I know, someone comes in and takes the stock that is still being offered at 214. Then another buyer sweeps the stock, taking everything at 215, 216 and 217, all the way to 218.

I'm in like Flynn, I figure. Ready to rock. Holy cow, I am up six points in three minutes. Even for the Net, that's something.

And then what happens? Guy comes back, offers 2,500 at 212. Told you this was the Badlands. I am cursing the guy because he's the master. He knows how to make a buyer feel like a moron. He's good. He's very good. He has wrecked whatever good feelings may have been caused by that stunning sweep.

I bid 210 for a thousand. If he hits me, then I know the Badlands are going to bleed red.

And then I wait. Nobody hits me. And he waits. Nobody takes him. Two minutes. Three minutes. Five minutes -- this is a lifetime in the after-hours business. An eternity.

Ten minutes later, that's still the market, 212 last.

The number of people viewing the screen has gone down. The number of people who want to play rapidly diminishes. It's 6:15 p.m.

Time to go home. My time in the Badlands is over. Looks like the stock's going out about where I bought it. Until tomorrow, when the authorities re-emerge and the rules change and all of this trading won't mean a thing. Good night.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Yahoo!, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at