Here at Top Gun Options we always emphasize that you need to pay attention to what is happening across the country and the world and how it may affect your trading of options. The most recent huge examples were the Covid-19 pandemic with the resulting crash and recovery, the worst inflation in four decades with the subsequent raising of interest rates by the Federal Reserve, and the Russian invasion of Ukraine with all of its fallout. When you pay attention to the news about what is going on in the world beware of the risks involved in news propaganda and your trading!
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What Is the News?
News is noteworthy and newly received information about recent events. News of importance to an options trader generally has to do with financial topics like the stance of the Federal Reserve on interest rates or Congress haggling over another debt ceiling increase. However, we have found that non-financial topics can end up being financial topics. Iran bombing Saudi oil refining facilities is not just about war in the Persian Gulf but also about the price of oil, its effect on the world economy, and fallout in the markets of the world. Paying attention to the news of the world is part of the job of trading options. Making sense of the news, sorting out the wheat from the chaff, and identifying disinformation, propaganda, and fake news can be difficult. This is why traders join one of the dedicated squadrons at Top Gun Options where we help you make sense of the news.
What is News Propaganda?
We commonly note how Wall Street talks all quarter about how terrible financials will be. Then, when results come in, they are not so great but so bad as the picture they had been painting. Thus, stocks go up on bad financial news. The “news” coming out of Wall Street all month is not news but rather news propaganda. News propaganda is very commonly true information but presented in a context that lacks transparency and conceals the true reason behind its release.
What Is the Purpose of News Propaganda?
Wall Street is not the only entity that uses news propaganda. Governments do it all of the time. Politicians are commonly even worse offenders. Anyone with a partisan, religious, economic, or ethnic agenda can and will use news propaganda to further their aims. The direct goal of the propaganda may be to hype a cause or it may be to take down an opponent. These are undermining and supporting types of propaganda. Your job and mine in following the news is to sort out accurate, unbiased, and useful news from biased, inaccurate, and potentially harmful news.
Buying the Rumor and Selling the News
One specific time when realizing that the news may be more propaganda than real news is preceding a newsworthy event like an announcement of interest rates by the Fed. The market commonly gets excited about rising or falling rates, or any issue, and drives prices up. The response to the actual news release is often a pullback in prices. Thus the strategy many employ is to buy a stock as it rises in price just before a newsworthy event and immediately sell when the actual news is released. This is one time when the accuracy of the news is not so important because you are trading how the market responds to the news and are not interested in the news itself.
When the Real News Is Important
At the beginning of 2020 the stock market was at an all-time high. Investors and traders had become accustomed to the market always going up. There was a guy on social media who give pizza reviews and then started giving stock advice. His advice, which worked for a very short time, was that “stocks always go up.” Of course anyone with a memory could recall the market collapse during the Financial Crisis or for older folks the dot com crash. Anyone who read any history knew about the 1929 to 1932 crash and the following Great Depression. Nevertheless, folks followed this advice as we saw news reports about a viral plague sweeping across China, people falling dead in the street, crematoriums running day and night, and cities of ten million or more being shut down. At Top Gun Options we recognized the potential economic impact worldwide of what was going on in China.
When to Ignore the Propaganda
When all of this was going on someone asked then president Trump about the newly recognized Covid-19 virus. He said it was not a big deal. We recognized this response as a form of politically motivated propaganda and called the Covid crash to the day. Then we virtually printed money for the next month as the “smart money” kept saying to “buy the dip.” Many times it is not clear what the truth is and what is propaganda or pure fiction. That is a time not to be trading options alone but to join a dedicated squadron like at Top Gun Options where we help you sort out the news and potentially print money in all markets.
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Originally published at https://topgunoptions.com on August 28, 2023.
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