So, JPM released surprise after-hour news that their derivatives group cost them $2 Billion in losses. Chaos, of course ensues, with their after-hours stock dropping 5%.
Interesting. Well, suppose in a scenario where you know the market is going to get killed the next day, what can you do? My buddy brought up an interesting point, buy ETF/ETNs that short the market or take advantage of volatility. That is a the natural and smart thing to do, but admittedly I think it is good for a hedge fund or other large institutional investor.
What can a small retail investor do?
The only thing is to think a few steps ahead. Either a) find out what will move next in reaction to the news and buy/short it, or b) go for capital preservation and live to fight another day.
But why is it not good for a small retail investor to do what the smart institutionals are doing?
Say you find a good bear fund(s), everybody who is interested in investing/betting on a market reversal is already going to be thinking the EXACT same thing as you. For the institutionals, they will be jumping on it already before the market even opens. They will have their orders in some of their dark pools or pre-market trading servers. By the time the market opens for trading, the open price will gap up immensely out of the demand. Your ONLY chance of buying is to place a market order… which really is the worst order to make… since you are instructing your broker to hit the first price that is given – no matter what it is – and you can bet somebody who is actually willing to sell their lottery tickets will also be anticipating the same thing and will respond accordingly by putting a SKY high asking price in hopes for desperate suckers going for market bids. And really, god knows if you have over estimated the impact of the earth shattering news. It could cause a massive fluctuation at the start, maybe a couple hours in, but then stability may come and the trade may go the other way.
Complicated, but I think the best course of action is capital preservation. Live to fight another day and step away from the falling knife. Let everybody else get cut. If you do get tempted to buy, don’t go all in. Ya, usual advice, but when things are crazy you could gamble it, or stay safe.
Good luck y’all!
theamateurmojoinvestor 