Low-priced equities (usually defined as stocks with share prices under $5) are a favorite vehicle among risk-tolerant investors for a host of reasons. This strategy creates instant leverage for shareholders (potentially amplifying returns) in a manner similar to buying a call or a put option, without having to worry about the all-important problem of an expiration date. Companies with exceedingly low share prices, however, often have underlying fundamental problems or operate in a high-risk industry (e.g., clinical-stage biotechs).
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