What are sympathy plays?
- Something that is played on the news headline based on the initial news coverage.
- Example: If Google releases completely new algorithms that other search engines can use, it will benefit other search engines such as Yahoo and BIDU, while hurting other companies like newspapers and print companies.
- The sympathy play is to buy the Yahoo or the BIDU. The reverse manner would be to short sell the newspaper or print companies.
- The reason you do this is because typically Google’s news would get released first. If you miss the move, you can play the other search engines. Those take a longer time to catch up to the original news.
- The same can happen with the oil and gas industry. If oil companies benefit from news, their stock will go up in price. You can play the opposite of that and focus on solar and energy companies, which might be going down in value.
- Sympathy plays are important to look out for because they have already digested the original news.