How to trade on breaking news
The following are few breaking news which occur very frequently and in following sections it is mentioned how to approach and make profitable trades.
1. Mergers and acquisitions Generally, when a company is going to be acquired, its stock price rises. This is because the acquirer typically pays a premium over the market price for acquiring the company.
Price of the company being acquired goes up, while that of the acquiring company goes down. The premium paid over the market value sweetens the deal and attracts traders with short-term profit motives.
The stock that benefits the least in the short term is the company doing the acquisition. In most cases, the stock price of the acquiring company falls as it is exposed to greater risk, but this is not any hard and fast rule.
2). Bonus and stock splitBonus shares are issued to the existing shareholders by converting free reserves or reserves from the company’s share premium account to equity capital without taking any consideration from investors. Generally, a company would issue bonus shares if its business is doing well to reward its shareholders for being with it.
Hence, it makes sense to hold on to shares of companies that have good fundamentals and have declared a bonus. Though the price adjusts immediately on the ex-bonus date, the bonus shares take time to arrive in the demat account of the shareholders.
If you do not receive such bonus shares in the due course, better to approach the investor relations department of the company. At times, companies split the stock into a lower face value of maybe Rs 5, Rs 2 or even Re 1. This helps create higher liquidity in the stocks, so that a higher number of investors can participate in the same.
3). Special DividendPost the ex-dividend date, the stock price falls to the extent of the dividend payable. Hence investors must have a good understanding of the business and the fair value of the company.
If you are not really upbeat about the company’s future, it makes sense to sell in the secondary market, as the cum-dividend price also factors in special dividend.
4). Rights issuesRights shares are those sold by a company to existing shareholders often at a discount to market price. It is very important that the investors keep track of the ex-right date.
If you do not intend to participate in the rights issue, better sell the stock before the record date.
As the stock goes ex-right, the price adjusts and the investors are mailed the rights form along with the prospects.
If you do not receive the rights form, you should get in touch with the manager for forms. Timely submission of the form, along with the consideration, makes you eligible for receipt of the shares
5). Delisting offers and buyback by tenderChanging exchange listing norms that demand for at least 25% of public ownership has made many consider delisting. Bright prospects of Indian economy have also accelerated the process.
If the share is available in derivatives, you may choose to hedge your position once the price moves up in sync with price discovery process.
But, if there is no futures market available, be twice as careful. If the delisting attempt is not successful and the company rejects the discovered price, the stock price may simply dive down.
From taxation point of view too it makes sense to sell shares in secondary market than tendering them to the company. For buyback by tender, it makes sense to estimate the possible acceptance ratio by taking into account institutional holding and active investors willing to tender shares. If the secondary market price closes in into the tender price, better sell in the secondary market
6). Declaration of order bagging
Companies mostly declare the orders they receive. If the order is really valued then the stock price shoots up.
7). Declaration of monthly sales figures, declaration of new product launch, declaration of expansion plans, declaration of change in management also affect the share price
The following are few breaking news which occur very frequently and in following sections it is mentioned how to approach and make profitable trades.
1. Mergers and acquisitions Generally, when a company is going to be acquired, its stock price rises. This is because the acquirer typically pays a premium over the market price for acquiring the company.
Price of the company being acquired goes up, while that of the acquiring company goes down. The premium paid over the market value sweetens the deal and attracts traders with short-term profit motives.
The stock that benefits the least in the short term is the company doing the acquisition. In most cases, the stock price of the acquiring company falls as it is exposed to greater risk, but this is not any hard and fast rule.
2). Bonus and stock splitBonus shares are issued to the existing shareholders by converting free reserves or reserves from the company’s share premium account to equity capital without taking any consideration from investors. Generally, a company would issue bonus shares if its business is doing well to reward its shareholders for being with it.
Hence, it makes sense to hold on to shares of companies that have good fundamentals and have declared a bonus. Though the price adjusts immediately on the ex-bonus date, the bonus shares take time to arrive in the demat account of the shareholders.
If you do not receive such bonus shares in the due course, better to approach the investor relations department of the company. At times, companies split the stock into a lower face value of maybe Rs 5, Rs 2 or even Re 1. This helps create higher liquidity in the stocks, so that a higher number of investors can participate in the same.
3). Special DividendPost the ex-dividend date, the stock price falls to the extent of the dividend payable. Hence investors must have a good understanding of the business and the fair value of the company.
If you are not really upbeat about the company’s future, it makes sense to sell in the secondary market, as the cum-dividend price also factors in special dividend.
4). Rights issuesRights shares are those sold by a company to existing shareholders often at a discount to market price. It is very important that the investors keep track of the ex-right date.
If you do not intend to participate in the rights issue, better sell the stock before the record date.
As the stock goes ex-right, the price adjusts and the investors are mailed the rights form along with the prospects.
If you do not receive the rights form, you should get in touch with the manager for forms. Timely submission of the form, along with the consideration, makes you eligible for receipt of the shares
5). Delisting offers and buyback by tenderChanging exchange listing norms that demand for at least 25% of public ownership has made many consider delisting. Bright prospects of Indian economy have also accelerated the process.
If the share is available in derivatives, you may choose to hedge your position once the price moves up in sync with price discovery process.
But, if there is no futures market available, be twice as careful. If the delisting attempt is not successful and the company rejects the discovered price, the stock price may simply dive down.
From taxation point of view too it makes sense to sell shares in secondary market than tendering them to the company. For buyback by tender, it makes sense to estimate the possible acceptance ratio by taking into account institutional holding and active investors willing to tender shares. If the secondary market price closes in into the tender price, better sell in the secondary market
6). Declaration of order bagging
Companies mostly declare the orders they receive. If the order is really valued then the stock price shoots up.
7). Declaration of monthly sales figures, declaration of new product launch, declaration of expansion plans, declaration of change in management also affect the share price
