TopShelfTraders.

Surfing news events for profits

Finding the right news events to surf with options.

The Mavericks at Half Moon Bay.  The sun is coming up, the wind is at your back and the waves are enormous.  60 feet or higher from what you can see.  It’s showtime.

You haven’t rented just any surfboard.  No, that’s an 8 foot big board.  You’ve been bragging about catching a wave for sometime now.  It’s time to take that thing out into the bay like a boss.

Unlike the young guns ready to roll – you’ve learned a thing or two in life.  You know opportunities like this don’t come along every day, so you’re hanging back to see where you should enter.  It doesn’t take long to realize that without some information, you’re going to either get crushed, drown or both.  Excitement is quickly turning into raw fear.

Then it dawns on you.  You’re out there alone.  In one of the world’s most coveted spots to surf – no one is there.  Why?

Welcome to the sinking sensation millions of traders face every day after making a trade based on a breaking news event.  Fortunately, if you know where to look – you can avoid this feeling all together.

Market waves that get the pros out of the cabana.

It doesn’t matter how beautiful the scenery is – if the conditions aren’t right – the pros stay at home.  How do they know when to go out and when to stay home and watch the tube?  They read the surf report.  They know where the waves will be.  How high they’ll be.  And when conditions will be ideal for surfing of any kind.

In the market, during breaking news events, when price is cresting (or falling) this is the exact moment that 95% of the retail trading public rushes in.  Completely unaware that the 5%, the pros who make all the money in moments like this, are waiting in their cabana.

To be clear:  They’re watching for both the right news wave and the right time to enter.  They have a surf report of their own – and they know exactly what they’re looking for.   Specifically, they’re watching for mergers, acquisitions, clinical trials, major misses on earnings day… real stock movers.

Put another way, you’re looking for news that’s overwhelmingly GOOD, or overwhelmingly BAD.  We’re not talking about clambakes, record sales or yoga classes.  No, you’re looking for mergers, bankruptcies, asset sales, clinical trials.

And that small matter of entries and exits?  That’s much more straightforward than it might to the average trader.  The pros are watching for a basic pattern that plays out with high probability with each type of event.

Like a big board surfer – much of what you need to know can be found at the end of the day, or in the early morning hours.

Riding a wave at the open safely.

Seasoned pro’s have met their fate at the Maverick’s.  Mark Foo headed out and caught an 18-foot wave on December 23rd, 1994 – and that was it.  They suspect that his leash got caught on a rock formation below the surface.

Every day, there’s a complete wipeout in the making when a big news wave hits.  A retail trader rushes in, makes his or her move only to see their trade die a tragic and sudden death.  Why?  They’re late and they’re early at the same time.

Late because they’re trying to catch the initial surge or plummet that takes place when the market reacts to a major event.  By the time they see it, price is already roaring a direction – and their trade is only going to get crushed.  In fact, by the time they see a headline cross their newsfeed – an average of 20 minutes has often already passed.

At that point, the money has already been made.  By the time they enter their trade – they’re late for the first move.  They’re also too early for the resulting trend that will likely follow the initial excitement.

Many times, this can be avoided by:

  • Watch for major news events that are released after market closes – or in pre-market trading.
    • These are announcements like clinical trial success or fails, big contracts that get awarded or partnerships that are cemented.  A company’s public relations team often calculates the timing to release these statements to avoid a halt in trading.
  • Wait for the initial surge or activity to die down.  Often a stock will get overheated in these moments – either overbought or oversold.  When this happens – you can step in and trade the fade.

Not ready to move during these moments?  No problem – let the dust settle and watch for the trend to ensue over the course of the following sessions.

If you’re watching for these entries, like the seasoned pros are – you’ll have any number of options trades you can make.

Taking your pick of trades, regardless of the event.

‘Standing on a wave’ is considered the ultimate feeling for a surfer at any level.  How long you ride the wave has everything to do with your technique, board and experience level.

The same exact premise is true when trading big news events.  If you’re simply looking for a big event to ride – they you’re likely not going to stay in the trade for very long.  Your wipeouts will be more frequent and your profits may be very short-lived.

However if you’re interested in riding longer waves over multiple sessions by watching the market’s reaction to a news event – and trading with it… well then you’re harnessing the natural power of the ocean for profits.

Take the below clinical trial.  The news was fantastic – a positive result.  Share price lost its mind – going from $12 and change to over $31.  There was the initial fade – and then the trend kicked in.  Embedded within this event were three options trades – for traders at any level:

  • Trade 1:  After watching the pre-market trading – it seemed logical that the buyers who entered early would need to sell.  The perfect chance to buy a put and play that short-term fade.
  • Trade 2:  The market then stepped in and liked what they saw right around mid-day.  Pullbacks?  They create great opportunities to enter with a call – and that call was rewarded.
  • Trade 3:  Not ready to trade that session?  Sit back and wait for a few sessions and see how things pan out.  You would have had your pick of any number of bullish or bearish credit spreads to choose from.

All brought to you by one trade – simply if you sat back in the cabana and waited like the pros do.

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