Editor's Note

Reverse splits are a curse for the company's making them. If your stock is already falling and has reached penny stock status, doing a reverse split to keep from being delisted just allows more traders to short the stock.



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FTR - Frontier Communications - Company Profile

Frontier Communications Corporation provides communications services to residential, business, and wholesale customers in the United States. It offers broadband, video, voice, and other services and products through a combination of fiber and copper based networks to residential customers. The company also provides broadband, Ethernet, traditional circuit-based, data and optical transport, and voice services, as well as Multiprotocol Label Switching and Time Division Multiplexing services to small business, medium business, and larger enterprises, as well as sells customer premise equipment. In addition, it offers 24/7 technical support; wireless broadband services in selected markets; and frontier secure suite of products, including computer security, cloud backup and sharing, identity protection, and equipment insurance. Further, the company provides satellite TV video services; voice services, including data-based VoIP, and long distance and voice messaging services; and a package of communications services. Additionally, it offers a range of access services that allow other carriers to use facilities to originate and terminate their local and long distance voice traffic. As of December 31, 2016, it served approximately 5.4 million customers and 4.3 million broadband subscribers in 29 states. The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008. Frontier Communications Corporation was founded in 1927. Company description from FinViz.com.

Earnings August 1st.

When a company's stock enters the terminal decline mode and reaches penny stock status, many will do a reverse split to avoid being delisted. The hope is that lifting the stock from $1 to $15 will entice funds to come back to your shares. Many funds are prohibited from holding stocks under $5 so they would have left the stock when that $5 level was broken. The problem with this strategy is that the stock is normally in a terminal decline and just bumping up the stock price does nothing to change the fundamentals.

Also, when a declining stock suddenly jumps back to $15 as is the case with Frontier, that encourages the shorting community to double down at the higher prices. Shorts that rode it down the first time, see the news and jump back in for another ride. FTR shares closed at $1.06 on Friday.

You cannot use options this soon after a reverse split. The premiums are crazy. After several days they will mellow and I will look at adding them to the recommendation.

Short FTR shares, currently $14.93, initial stop loss $16.65, just over Monday's high.


Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 at the market open.