dilution-event-scoring

Dilution Event Scoring

A reproducible 0–100 framework for "how dilutive is this name right now." The point is not to be perfectly accurate — it is to be transparent and consistent so you can compare across tickers and across time without drift.

Core principle

Score components, then combine. Never start from gut, then justify.

Each component contributes independently. Final score is a weighted sum, capped at 100. Every score must be reproducible from the inputs; if you can't write down which signals fired, you don't have a score — you have an opinion.

Components and weights

Component	Max points	Sourced from
Active ATM detected	30	atm-detection
Placement agent tier	20	bank-tier-classification
Filing recency	15	filing dates
Cash runway	15	last 10-Q "Liquidity" / cash + burn rate
Structural toxicity (warrants, ELOC, deep discount)	10	424B / 8-K body
Repeat-dilution history (12mo)	10	filing-count over 12-month window
Total	100

Active ATM detected (0–30)

State	Points
Confirmed active ATM (3-signal rule passes; recent 10-Q confirms in-use)	30
Active ATM authorized but no recent 10-Q confirmation of use	22
ELOC active (Common Stock Purchase Agreement with single counterparty)	25
Registered direct in last 30 days, no ATM	12
Effective shelf only (S-3/F-3 effective, no 424B in 6+ months)	5
No effective shelf, no recent offering	0

Placement agent tier (0–20)

Apply only when an offering or sales agreement is in flight. If no agent is named or none of the signals above fire, this component is 0.

Tier	Points
Tier 4 (specialized small-cap placement, e.g., Wainwright on ATM)	20
Tier 3 (boutique / sector specialist)	12
Tier 2 (mid-tier full-service)	6
Tier 1 (bulge bracket)	2
No agent involved (e.g., S-1 for shell, no underwriter)	8 (unknown is risk)

Filing recency (0–15)

The market's memory of a dilution event decays. Recent = more pressure.

Most recent dilution-relevant filing	Points
424B / 8-K item 3.02 in last 7 days	15
In last 30 days	10
In last 90 days	5
> 90 days	0

Cash runway (0–15)

Estimate from last 10-Q: (cash + equivalents) / quarterly burn. Use the most conservative interpretation when data is partial.

Estimated runway	Points
< 3 months	15
3–6 months	12
6–12 months	7
12–24 months	3
> 24 months	0

If runway cannot be estimated (no recent 10-Q, going-concern language without numbers), assign 10 and flag for manual review.

Structural toxicity (0–10)

Read the 424B / agreement for these features. Each present = 2 points, capped at 10.

• Warrants attached at or below offering price
• Pricing at >15% discount to last close
• ELOC / Standby Equity Purchase Agreement with discount-to-VWAP pricing
• Convertible note with reset / variable conversion
• "Best efforts" placement (no firm commitment)
• Multiple amendments to S-3 in last 12 months (suggests repeat use)
• Going-concern language in the most recent 10-Q

Repeat-dilution history (0–10)

Count distinct dilutive events in the trailing 12 months (424Bs, 8-K 3.02s, S-8 effectivenesses, registered amendments).

Events in last 12 months	Points
6+	10
3–5	7
2	4
1	2
0	0

Score thresholds and actions

Score	Label	Action recommendation
75–100	🚨 SEVERE	Treat as continuous selling pressure. Avoid long. Short candidate on strength. Confirm with atm-detection.
55–74	⚠️ HIGH	Material dilution overhang. Reduce size, no overnight on green days.
35–54	⚠️ MODERATE	Watch carefully. Tradable with discipline.
15–34	LOW	Background risk only; structure looks clean.
0–14	MINIMAL	No active dilution mechanism detected.

Worked example (illustrative)

Input: ticker XYZ, today.

Signal	Score
ATM detected: confirmed active, last 10-Q says "$8M sold YTD under ATM"	30
Agent: H.C. Wainwright on the Sales Agreement (Tier 4)	20
Most recent 424B5: 5 days ago	15
Cash runway from last 10-Q: ~4 months	12
Structural toxicity: warrants attached, going-concern language → 2 + 2	4
Repeat dilution: 5 events in 12 months	7
Total	88

Verdict: SEVERE. Continuous selling overhang; treat any rally as a print opportunity for the issuer.

Hard rules

1. Never publish a score without the component breakdown. A naked number is not actionable and not auditable.
2. Lookahead safety applies to every component. A 424B "in last 7 days" means filing_date <= today AND >= today minus 7 — no future data. Re-scoring an old date requires the data state AS OF that date.
3. Do not double-count. ATM points already encode the 424B + agent structure; the "filing recency" component refers to the calendar age of the most recent filing, not the existence of the filing.
4. Re-score at every new filing. A score is a snapshot, not a permanent label. New 10-Q can drop runway points; new 424B can restart filing-recency points; an 8-K announcing ATM termination should drop the ATM points to 0.
5. Component weights are not sacred. They are calibrated for small-cap US/FPI tickers. For different universes (large-cap, REITs, biotech with milestone-based structures), recalibrate before using.

Anti-patterns

• Scoring on a single signal. "S-3 effective → 100" is not a score, it's pattern-matching. Always require multi-component composition.
• Hand-waving cash runway. If you can't extract the number, assign 10 and flag — don't assume zero.
• Treating tier as a moral judgment. Tier 4 is a behavior prediction, not a verdict on the firm. Same for low scores: a clean Tier 1 underwritten secondary is still dilutive on pricing day.

Workflow

1. Collect inputs:
   • last effective S-3/F-3, latest 424B*, latest 8-K items
   • placement agent name (if any)
   • last 10-Q cash + quarterly burn
   • 12-month filing history
2. For each component, compute the sub-score using the tables above. Always cite the source filing.
3. Sum, cap at 100.
4. Output: total score, component breakdown, verdict label, top contributing signals.
5. Stamp with the data-as-of date for reproducibility (lookahead-safety).

Phrases that should trigger this skill

• "how dilutive is X" / "score the dilution risk"
• "dilution score" / "dilution risk score"
• "is this stock about to dump"
• "compare dilution risk between X and Y"
• "rank these tickers by dilution"

What this skill is NOT

This is not a price target or a trading signal. It quantifies the structural dilution risk in the filings; it does not predict short-term price moves, scoring trade entries, or confirm execution mechanics. Combine outputs with price/volume context and your own trade plan. Required upstream skills: atm-detection, bank-tier-classification, sec-filing-types, lookahead-safety.