If you ever visited The Octagon – our live trading room where I and Jason Bond trade – you’d know we both think stock catalysts are very important.
Ben Sturgill holds very similar views, as those of you frequenting The Workshop – Ben’s own live trading room – can attest to.
The significance of catalysts is very simple – they bring in new information, forcing the market to re-evaluate an underlying stock.
Whether positive or negative, all major catalysts have one thing in common – they bring in volatility and outsized moves and that’s all we, traders, care about.
I know that we generally use catalysts to find active stocks to enter.
But can you anticipate a catalyst beforehand? And use it for an outsized exit?
Ford Joining the EV Hype
Ford Motor Company (F) is not just the iconic car-maker.
It’s also a stock we, Raging Bull trades, have been talking about for months now.
Here’s an excerpt from Jason Bond’s watchlist from back in May (!!!):
The stock is now trading above $24 – not too bad of a call on Jason’s end!
We’ve all mentioned F numerous times since for one simple reason – Ford’s EV announcement was simply too massive and the EV sector too strong!
We knew the market would react in some shape or form!
Ben’s Recent F Trade
Speaking of much more recent times, though, Ben noted Ford a few weeks ago, right as it was consolidating at the highs:
The stock clearly wanted higher, but was struggling to gain traction.
Ben’s general thesis was simple – a fundamentally sound company, with a compelling growth story, a strong uptrend, in a very strong sector and a possibility of future EV announcements/catalysts.
From the technical standpoint though, Ben saw a failed breakout higher after a long consolidation.
Still, he believed that if support held, the breakout will be retested again in fairly short order.
So he picked some Call Options on yet another dip below $20, with a very tight stop:
Fast forward a few weeks, and the technical setup was working just like he had anticipated:
As of yesterday, the stock was going for a re-test of the breakout area and actually climbed past it to nearly $22.
Ben began scaling out of the trade.
And then today came, and Ford announced that it’s doubling its production goal for the electric version of the F-150 Pick-up truck. Shares soared:
And so Ben took off his remaining Calls:
Neither I nor Ben or Jason would advise you to trade in anticipation of a catalyst.
From our experience, these trades generally don’t pay well.
In Ben’s case – he wasn’t anticipating the catalyst. The trade was already great PLUS he knew there was potential for future announcements.
Hence, don’t bet on it, but if you find a stock where the market is clearly supporting a higher valuation, the story is hyped up, and you get a great technical setup in it – an unexpected catalyst may really rush things in your favor!