Low Float Big Gap

Bit rusty on this play apparently, despite it being one of my biggest winners over the past few years.

Bigger Picture: A macro catalyst bringing attention to the stock, e.g. LAKE/DGLY more caution is warranted. However, most stocks that gap up 100%+ will end up being a great short on day 1.

Scenario's:
(1) Up-trend all day, ending the day 200%+. This does happen, although it is unlikely. Additionally it is usually pretty obvious 11am onwards.
(2) Down-trend all day. Never breaching vwap aside from the open.
(3) Bit of down-move off the open, then trappy like action, and a break to highs (and probably a moderate amount above) around mid-morning before likely closing at the lows. Note that this can turn into scenario one; as a big gap often needs time to consolidate.

The general thesis behind this trade is that the gap is simply too big to hold without genuine meaningful news (rather than pumpy news).

Controlling risk: It is very important to realise that while these stocks can give the illusion of liquidity, they are relatively illiquid and can move quickly. The usually occurs when scenario 1 or 2 plays out. The stock will be grinding lower, with an extreme lack of speed, and then seemingly randomly propel higher with 10x the explosive power. This requires very quick manual speed or an automated stop-loss to get a good stop-out.

The most difficult scenario to trade is scenario #2, because there is very little to distinguish scenario 2 and 3 during the first hour. The first indication is when it holds up, when maybe it should have made a new low, or when it makes a new low, and gets straight back above on big buying (trapping shorts).

Acknowledge that may get faked out on any stop, but it's well worth adhering to that stop.

How to Trade:
Scenario 2 will be confirmed by around 10:30am. From there can look to short around vwap/at levels. Be sure to enter only half size at each level to maximise probability of success - with ultimate hard stop a level or two higher.
On the open: Short strength half size, and once weakness and defined stop-loss at highs go full size; but take some profits immediately. There is a choice between controlling size and being prepared for a high of day test, and tight stop around vwap - then reshort once the highs have failed. It is situational.

Here is a pic of LPTN, around the open which caused a fair bit of grief. But in the end played out as it should have, closing at the lows.