Disclosure: I am long KNDI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
As a former OTC Market Maker, here is a likely explanation as to why Kandi (KNDI) stock was aggressively knocked down yesterday with no news.
Kandi stock has listed stock options that trade on the listed options exchange. Kandi's stock options always expire on the third Friday of the month. This Friday, the various option levels expire for the month of September (as you can see on the table below) which is the last options period for the third quarter of 2013. Though KNDI normally does not trade a lot of options, this September period is an anomaly. As you can see from the yellow highlighted area on the options table below, the near term, $5.00 "Call" options have an astounding 6,634 "contracts open interest" outstanding. Usually, normal retail speculator investors buy these options which have been available for purchase on the options exchange for some nine months now betting that the stock would close above $5.00 on Sept. 20th expiration day. If it does, then they can "exercise" or "Call" their options by putting up the $5.00, (often they would use margin to do this requiring only $2.50 a share be put up) or they could sell back the options for the premium.
On the other hand, for each option that is bought, some someone had to "sell" these options. It is likely that a large percentage of the options that were "sold" were sold as "naked options". Which means the person or entity who sold the options to the long holder does NOT currently own the underlying shares, but is still required to deliver the shares to whoever exercises the options if the stock closes above $5.00. If he can get the stock to close below $5.00 the naked options short seller gets to keep the entire premium or "in the money" value the buyer paid him at the time of the original transaction. HOWEVER, if the stock closes above $5.00 this Friday, the short seller could have an extreme problem in having to quickly "deliver" shares to the buyer that he doesn't own since outstanding "in the money" options will likely be exercised.
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