Is that the phone ringing?

Margin calls!

That's the "joke" I saw posted all over the XM Satellite Radio message boards yesterday. Not that I normally read those things, but yesterday was a special situation. I was long a sizable postition is XMSR (sort of by accident, as I previously mentioned) and I wanted to get a feel for daytrader sentiment.

I mentioned yesterday that I was holding a postion in XMSR overnight reluctantly. The "reluctance" was because I was pretty sure there were too many small investors who had large percentages of their portfolios in this stock. Since the stock had fallen about 70% from the time it was attractive to small investors, and had just fallen another 10%, there were bound to be some investors getting a margin call. It might only be $5000 in an IRA, but that's still $5000 of stock that needs to be sold at the open no matter the opening price. I'll repeat: no matter the opening price! A glaring market inefficiency. If there are margin calls ahead, a stock is almost guaranteed to open much lower.

Open lower it did. A few moments after the open, XMSR was down another 6% from it's previous close. My system HAG position was about 17% in the red. Luckily, once all the margin calls had been settled, the stock was able to rally. And rally it did. XMSR rose about 10% from it's low today to make the reluctant decision to hold XMSR through today a good one. I don't like having to make decisions like that, but there's no clear-cut way for me to correct my mistakes. Do I sell positions immediately? Do I hold? I think I have to leave these rare choices up to my instincts.

Oh, and there's a silver lining to this situation. All that thinking about XMSR led me to buy a few thousand shares this morning. I was hoping there might be a post-margin-call bounce. A very profitable trade. Will TIVO do the same thing tomorrow?