When trading secondary offerings its first good to understand how it can effect a company when it is announced. Secondary offerings may not be very familiar to most investors or traders but it actually may have more of an effect on the price of stocks they participate in than originally thought providing excellent trading opportunities.

A secondary offering is simply an additional issuance of stock to the market. The additional stock may be considered primary shares (shares actually being sold by the company itself) or the stock may come from large existing holders of the stock. While the net result is often the same (additional shares in the public float), the resulting fluctuations in the underlying price can vary drastically and often depends on which type of stock is being offered.

While every case should be analyzed individually, it is widely accepted that primary shares are more constructive to a company and its stock. The reason is that the actual company is receiving the majority of the capital and can reinvest it into the business and that have come to market from time to time to raise additional capital. While the sale is often initially dilutive to current shareholders in regard to the technical book value per share, if management can explain how the additional capital will be put to work profitably, the shares often rally after a deal is priced.

On the other side a secondary offering that is providing existing shareholders an easy exit. Ironically, while this type of trade has virtually no economic effect on the underlying company, this type of secondary offering can be damaging to existing shareholders. The reason revolves both around the supply/demand equation as well as hinging upon the element of trust or confidence which is paramount in the trading of securities. If an investor/trader knows that one of the founding members of the firm has decided to liquidate his/her position, The question comes up as to why this party would be selling some or all of their position can result in a lower multiple as the perceived risk in the stock.

At the same time, basic economics will tell you that when there is excess supply (imagine a large block of stock hitting the market) and demand is not strong enough to soak up that supply (who is going to buy this insiders 10 million shares?) then the natural result is lower prices. While the price may often bounce back as nothing has fundamentally changed within the company, . It may be that he/she knew more about the business environment than the general public and so his/her expertise allowed them to exit the stock at an attractive time. This does not necessarily mean that there is insider trading occurring, but more likely that his knowledge of the entire industry or economy leads the insider to make a wise selling decision.

There are two types of secondary offerings, the first one is a Spot Secondary which is announced after the market closes and prices the deal before the opening. A company would use this type of secondary because the market conditions are right.

The other type would be At the market Secondary which is the regular way a company would announce its deal giving at least one full business day to prepare for pricing.

Important facts to incorporate into trading secondary offerings:

• Dilution of stock holders
• Use of proceeds
• Institutional ownership
• Who is receiving the proceeds
• Debt of the company
• Book running Manager (Lead Underwriter)
• Research reports
• Technical analysis of the stock

Global Alliance Capital specializes in analyzing which secondary offering to trade by using a fundamental and technical approach mentioned above.