Cheap Stock

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DEFINITION of 'Cheap Stock'

The illegal practice of issuing stock options at artificially low prices shortly before an initial public offering.

Often underwriters will require a company to have more qualified management before they can go public. They attract these qualified individuals by giving options with a low exercise price.

BREAKING DOWN 'Cheap Stock'

Any option granted at a price that turns out to be only a small fraction of the actual IPO price will likely be regarded as cheap.

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RELATED FAQS
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    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
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    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
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    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
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    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
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