One of the most popular, and most effective, methods of trading is to follow the big money. If a major bank or hedge fund makes a move, trading in a way that allows you to benefit from their actions can be extremely lucrative. Of course, the major issue with this is that these institutions do not announce what their trades will be before they make them. If they did that, they would be shooting themselves in the foot as everyone would try to jump in on the action before them, lessening any potential profits that could be made.
Right now, bank stocks have been suffering, despite the fact that they have powerful decision makers guiding their investing. Even with great holdings, banks are suffering because of the low interest rates in the economy right now. They are simply not able to charge as much for their lines of credit and borrowing. With the Fed holding off on raising rates for now, stocks don’t seem like they are ready to move up yet. Many big traders are banking on this with their trades. One notable investor is going short by over a million dollars on the XLF ETF which monitors the financial sector. Obviously, this man thinks that banks are going to tank. Given a lot of the evidence out there, this is a good assumption.
A drop in price is realistic, and taking put binary options to back this sentiment would work. If you are going to do this, though, you should wait. One, you don’t want to take on the same level of risk that was described above. If it works for you, it will pay off big, but there’s no guarantee that that will happen.
The second reason why you should wait has a bit more to do with logistics. Most binary options brokers tend to break up their long term expiries by end of week, end of month, and end of year. Four of the biggest banks in the United States—Citigroup, Wells Fargo, JP Morgan, and Bank of America—all have earnings being released during the week of October 12th. Looking at binary options that expire during this timeframe will not only decrease your exposure to the market, but it will be timing things correctly so that you can account for the immediate reaction to the news. This is a strong strategy as it allows for you to follow not only what the big money investors will be doing, but you can also ride the waves of momentum that the masses will create once more and more people jump onto the trading for these stocks and the indices connected to them.
Finally, it gives you time to prepare during what might be a crazy couple weeks leading up to the week of the 12th. Top traders know that these are volatile times, especially for bank stocks. They also know that there’s a good chance that earnings will be lower than projected, so a selloff may occur to prepare for this. This is typical before big events like an anticipated earnings release, and when volatility is an issue, major investors tend to err on the side of caution and sell to decrease ongoing risk.
Following big money is a solid strategy, but even better than this is to anticipate what big money will do. In this case, one of the things that big money will be doing over the coming weeks is trying to predict how big money stocks are going to fair with their Q3 earnings. So far, the general though is that banks have suffered, and taking advantage of anticipated losses can lead to big gains for you if done right.