Run a casino evil

The market is more a casino than a stock exchange: what to do?

You are currently experiencing price movements in stocks that are up to 50% and more per day.

There are no daily news that would justify price fluctuations in such dimensions.

Examples of price fluctuations for one day each

Daimler: A price jump of around 8% for the Daimler share from the daily high to the daily low despite good figures.

Commerzbank: Commerzbank's share price shot up 18%.

Deutsche Bank: The Deutsche Bank share gained 11.8%.

Mylan: The share lost a good 20%.

LinkedIn: That stock lost over 50%.

Oil price: The oil price gained around 10% (depending on the variety).

Even an anti-gambler share like Lindt & Sprüngli has (as of February 2016) a range of prices of around 10%.

The market is like a casino

Of course there is and has been news to cite.

The reported profit of Commerzbank was cited in the media as the reason for the price increase of the share. At Deutsche Bank, the buyback of the bonds was the supposed price driver.

At Mylan there was an expensive takeover offer for the pharmaceutical company Meda. And LinkedIn gave an unsatisfactory outlook.

These are just a few examples. The series could be continued. However, the following always applies: There was no reassessment of the company that could lead to a change in the group value of up to 50% or more per day.

When I observe the markets on a daily basis, I often feel like I am in a casino. And the word “game casino” probably best describes what is currently going on in the market.

The media often only show half the truth

At Commerzbank, the 18% daily profit on the share is cheered in the comments.

However, it is “forgotten” that in 2007 the share cost over € 300 (adjusted for split) and in 2011 it was still quoted above € 50.

In view of this, the price gains from € 6.39 to € 7.54 are completely meaningless for long-term shareholders.

The situation is similar for Deutsche Bank shares: In 2007, the shares were listed above € 100.

Now (as of February 2016) they have increased from € 13.69 to € 15.30 - a brief flicker of “broken papers” for long-term shareholders.

Dead cat bounce

In English usage the term is humorous "Dead Cat Bounce" created. That means translated: the hop of a dead cat.

This is to say that a dead cat will bounce off the ground again if it is dropped from a corresponding height.

Cheering arias (as they were often read at Commerzbank and Deutsche Bank) are not appropriate.

The market is more a casino than a stock exchange: what to do?

I've seen such roller coaster rides in the markets several times. You could get out.

Rhetorical question: When do you start again with such course capers? You can only tell retrospectively when the spook is over.

And then the prices of the indices may be more than 10% higher again. Because several 100 points of price change per day in the DAX are currently commonplace.

Do nothing: Always remember: You can act you have to but not. Therefore, it may well be that you do nothing.

Rely on big moves: Finely balanced combinations of buying calls and puts on the same share offer you good chances of winning with security at the same time; That's a long strangle.

This means that you are betting on a large price movement in the underlying asset (e.g. Deutsche Bank share). It doesn’t matter whether the share price is rising dynamically or crashing like a crash.

Either way, you will make a high profit with this strategy - a strategy I would be happy to recommend to you in the current market.

The Varta share, the high flyer of last year, has recently made massive corrections. The price slide could be an entry opportunity. > read more

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