When a underlying stock which a sector has some good news and begins to move up, the underlying stocks of the other companies in the same sector will often start to run up as well – in sympathy with the original mover.
If one company in the sector is doing well, it's possible that demand for the whole sector's business is growing or that the whole sector will develop its products or market so that all companies in the sector will become desirable for least a day or two.
Likewise, when a underlying stock has bad news and begins to tank, others in the sector will often start to trend down as well. A great way to handle sympathy plays is to look at all the underlying stocks in the sector to see whether others have started running with the news-marker.
We are a weekly options crew and sometimes will venture into the underlying stocks. Here is some insight on how to adept this to weekly options.
Example:
8:28 AM More on MasterCard's Q3 report: Gross dollar volume of transactions grew 18.1% Y/Y, up from Q2's 16.4%. 13.6% growth in U.S. dollar volume, 20.4% growth in international volume. Processed transactions rose 20.5%, up from Q2's 17.4%. Free cash flow was $991M, up 72% Y/Y. MA +6.7% premarket. V +2.7%. AXP +2%.
8:12 AM MasterCard (MA): Q3 EPS of $5.63 beats by $0.82. Revenue of $1.81B (+27.3% Y/Y) beats by $100M.
As you can see that (MA) had reported Before the Open at 8:00 AM ET and scheduled a Conference Call at 9:00AM ET, who cares about this news-marker, well its simply the fact that this is a weekly option player and it has two other weekly option players in its sector.
At 8:28 AM the last line of the paragraph, shows Visa (V) and American Express (AXP) these are the laggards – underlying stocks that should also start running but haven't yet.
Make sure there's no news of its own in the laggards that will keep it from following the sympathy news-markers trend.. Remember, news is news, but how the sector reacts to the news is the point.
