Hey this is Sasha Evdakov and thanks for joining me here at Tradersfly.com, where I share with you insight about trading, investing and the stock market. On today’s video episode, what I’d like to do is share with you What is a Stock Sympathy Plays, and how can you use it within trading or why you may use it in trading.
I find that this happens a lot during earnings or people will trade the sympathy plays throughout earnings and sometimes it happens due to sector, sector news, rules and regulations that also impact things.
It’s something to be aware of. I don’t use this technique a lot in my trading but there are certain situations where as you see things happening and evolving you may decide to trade based on a sympathy play.
Defining Sympathy Play
To get things started, first off what is a Sympathy Play? Well, Sympathy Play is something that you go ahead execute and play based on something related. So if we go ahead and look at a watermelon and you also take a look at an orange, these are fruit and they are related.
They’re related to one another, in terms of them being fruit. Now in the stock market you also have relationships that work together and they work together in really unique way. So for example, what you may end up happening or having the relationship is you may have Bidu, which is a search engine, Chinese search engine and then it also relates to for example like the Googles.
Now, you can also say that Bidu is also related to the Yahoo, so Yahoo and Bidu is also related from one another because these are all search engine based.
Now if we take things a little bit further, you can also say that Yahoo is also related to Alibaba, so these two are related and these two could be a potential sympathetic play if something happens to one or the other.
Really, what you’re doing here in this situation is you’re mapping out relationships, that’s what it really comes down to when you start looking at all different stocks and how they move, how they trade, is that it really comes down to relationship.
Relationships in trading
Now you have a basic understanding of what relationships in the stock market, but how does this play out in trading? Well, let’s say for example that there is a big wig, or a pretty wise guy, it could be a serious investor, that’s really interested in investing in one of these companies.
It could be Bidu, Google or Yahoo, whatever the investment is, he’s interested in one of them because he’s betting on these search engines, he’s betting that search engines are going to be huge in the future. It could be that because internet is going to explode in the future, but in either case he’s looking for search engine growth.
So, what he does is let’s say he invests in the Google, so once he invests in Google, he’s betting on the search and this investment could propel that stock extremely high. Now, he might’ve gotten into this investment right around here and this stock exploded and continued to move to that upside and now it’s currently somewhere all the way up here, it’s very high.
It’s already moved, past let’s say fair opening price or a price that you would want to get into, it’s way beyond where you’d want to get into.
What you could do is go to the next area, or the next company and you could say “Wow, I like that idea, I believe search engines are going to grow, so I might invest in Yahoo or Bidu, or one of those things. So you might decide, to invest in the Chinese search engine which would be the Bidu.
You invest in Bidu, in hopes of later in the future, catching that upside move similar to what Google did because you’re investing in that sector or segment within search.
Now, these kinds of things can happen at any time for any industry. So for example if Yahoo releases earnings first, what may end up happening is if the earnings are fantastic and great, then more people may decide to purchase Alibaba because they sum well.
Yahoo’s earning great, so probably Alibaba’s will be as well, or it could be the reverse, if Alibaba reverses and says “Hey, our earnings are fantastic” and great since Yahoo is an investor of Alibaba, at least for the time being.
Then what may end up happening is people may decide to go ahead and purchase Yahoo and say well if Alibaba had great earnings and Yahoo is an investor then probably Yahoo stock will also continue to rise and increase.
That’s how people really start looking at these sympathetic plays.
Now, these sympathetic plays can happen even in sectors, so as you start looking into let’s say a health sector, it might be in the health care industry, then what can happen is if there’s rules, or regulations, or anything like that, that are being asked, let’s say by congress, by the board, anything that happens between these health care stocks, or sectors or things that are going on within the government.
That can affect these health care stocks, so it could affect the drug makers, it could affect people who deal with health care insurance, all those things are to be paid attention to.
So what people may do is rather than playing directly to let’s say the drug companies or the pharmaceuticals, what they may end up doing is playing the health care insurance companies.
Now, you’re kind of playing something slightly different but still related.
Summary of the lesson
That’s really what a sympathy is, is it’s based on the relationship that a stock has and how you decide to play that relationship from another company because it’s sympathetic and related to it.
Just like here, Bidu is related to Google, and Google could be related to Yahoo because they’re partly search engines and Yahoo’s related to Alibaba, so if something happens to Alibaba things go up in price, things go up in value, they make more money and Yahoo can be effective.
Otherwise, we may say a big wig investor goes and says “Hey, I want to buy the search engines, or I want to buy a bottling company or I’m thinking that oil is going to be huge, or solar energy is going to be big” and so they invest in a solar company, but that move already happened, so what do you do?
What can you do if that move is already moved? Well, what you can do is get a sympathetic play, something else, it might not be a watermelon but it might be an orange, it might be something slightly different in hopes of catching that run as well to the future.
That’s how people move in the stock market, is they flock to one area or another and the same thing can happen in sectors such as health sector, could be a pharmaceutical sector, airplane sectors, aerospace engineering sectors.
There are a lot of things that can happen, it’s all based on these relationships that are composed within the market, which stocks are related, which stocks are in a certain group or sector, and how one can affect the other.
In the end, sympathetic plays is not something that I use or play all the time, it’s just when something is happening, there might be a news event, a news catalyst that’s moving a certain stock.
That’s why you see other stocks in that sector industry moving, so it could be something that you might want to put in your toolbox and sometimes whip it out and use it if necessary.
Thanks for watching this video lesson! Remember to do what you love, contribute to others, but most importantly live life abundantly.
I’ll see you next time!