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Riding on the Coattails

The big news of the day is that the NASDAQ Composite Index went down well over 1 percent on Monday, mostly because of the sudden and huge decline of biotech companies. As of 2 PM Eastern Time, eight of the nine companies that declined in value the most were either pharmaceutical or medical research companies. The healthcare field and related industries are usually a pretty safe investment since this is a service that will only go up in demand over time. The combination of a growing population plus the need for ongoing medical and scientific advances will always make this industry grow. So, why the big decline all of a sudden?

The first thing to note is that companies may come and go. This industry will always be necessary and it will always be growing, but the individual corporations that make it up will see some flux. Even a big company can go bankrupt, and this is true even in the medical field. You can rest assured that this sector as a whole will recover, but a few of the companies involved, especially some of the small penny stocks, might not. At this early point, it is way too soon to say with any certainty what’s going to happen other than this.

The most immediate question that you should be asking yourself is, “how do I make money off of this?” It’s actually a good question. Can you somehow find a way to ride on the coattails of the NASDAQ’s misfortunes and turn it into a profit for yourself? The answer is yes, of course you can. Doing so is not quite so easy, though.

First, start with the most obvious fact. The NASDAQ is lower now than it was before. And because the general nature of the stock market in general is to go upward over time, this means that you now have a new low point. Buying low and then selling high is the most basic lesson you can learn within the world of trading, and a significant drop in any index provides a big opportunity in many cases to accomplish this.

But this is very basic, and not the only way to profit. Using binary options can provide you with other choices, too. For example, using put options allows you to profit off of falling prices without extra fees or commissions like selling a stock short would. Taking out a string of short term put options on the NASDAQ could have resulted in gains much higher than the 1+ percent return that a reverse ETF on the NASDAQ might have given you. That was on Monday, though. By the end of the trading day, the NASDAQ had already begun to show signs of recovery. Does this mean that Tuesday will see the NASDAQ go up in value? Or will there be more overall decline? This is one of the toughest parts of trading–everything is always complex.
ETF for the Nasdaq
Really, there are a few things you need to do to figure out what the index is going to do. First, look at why it went down in value. It was in large part because of the biotech companies and the pharmaceuticals. Are these companies going to keep declining as rapidly? Next, look at the other things going on. There is a lot more to the NASDAQ than the medical field. What are the other companies doing? Then figure out if they are doing it in a strong enough way to overtake the waning biotechs.

Finally, figure out the best course of action. Binaries are great because they allow you to look at the market in little slices of time. You don’t have to tie your cash up for hours or days on end, but you can easily execute a 15 minute trade (or shorter) without any sort of penalty being incurred.

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