Event-Driven Investing

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Contributor, Benzinga
June 15, 2020

Every investor knows that the market makes short-term moves in response to news events. Some people make a career out of reflecting society back to itself in a securities portfolio. Properly managed, your portfolio can turn your experience understanding the news into real money. 

If you’ve ever wanted to get paid watching the news, now you can. Let’s take a look at how event-driven investing can make this happen.

What is Event-Driven Investing? 

Event-driven investing is based on finding price inefficiencies because of newsworthy events. It is usually a short-term investment strategy.

Event-driven investors seek out opportunities around expected events like earnings calls, mergers and acquisitions, bankruptcies and spinoffs. Every company has a schedule of internal events, and news surrounding big moves like a merger will circulate the rumor mill for months or years before anything actually happens. These events give time to prepare, but they can still be confusing without experience addressing them in the market.

There is a branch of event-driven investing based around quick reactions to unexpected events as well. To compete profitably in this environment, you will need a brokerage account with a real-time news feed and level II quotes. This may present an overload of information for a beginner — even a beginner that is used to the constant stream of data on CNN, MSNBC and Fox. 

Investors in this space take opportunities very quickly. You may only have a few seconds to respond to an unexpected news item before your competition eats the profits. 

Keep in mind that there may be a delay between an event and the market’s response to it. Learning to account for this phenomenon is part of being a good event-driven investor. You don’t have to know exactly when the event’s backlash will occur — you just have to know how to invest to capitalize on it.

Upcoming Events for Accredited Investors

Accredited investors have an advantage over even the best prepared common investor — access. As a rule, the nonaccredited investor cannot reach the best opportunities when news hits. The companies most affected by earnings calls or bankruptcies may not even be the ones the story is about. 

The real winners are the up and coming businesses ready to take market share from the big boys after a mistake. You won’t find these institutions listed on the NYSE and maybe not even on the pink sheets. You need exclusive access into an industry through events on the ground.

Here’s a list of the rooms you need to be in.

Virtual Psychedelics Deal Room

Benzinga’s next Virtual Deal Room, June 23, 2020, will focus on the up and coming psychedelics industry and the unique investment opportunities surrounding psychedelic research.

In the Virtual Deal Room, you’ll have intimate access to:

  • Presentations by an exclusive group of CEOs 
  • Curated 1:1 video meetings with these CEOs
  • Quality deal flow without the travel expenses

Our past speakers include Chris Bogart, President of Choom; Karim Nehme, President of New Maple Holdings; Michael Harmell, CEO of Minis; Todd Bergeron, Managing Partner of Conor Green; Mike Cuthriell, CEO of Grow Sciences; Jose Bacellar, CEO of VerdeMed; Lucas Robinson, CEO of CannGoods; David Kunselman, Ryan Hansinger and Edward Sickmiller, Managing Partners of Morenci Brothers; Peter Vogel, CEO of Leafwire, and Guy Setton, CEO of GemmaCert.

Virtual Cannabis Deal Room

We’ll return our focus to the burgeoning cannabis industry later this month. Our monthly Virtual Deal Rooms for this industry have become one of our most popular monthly staples and are a great lead up to our Cannabis Capital Conferences.

Experts expect the medical marijuana industry will be worth over $100 billion by 2025, with the total market worth more than $146 billion. The U.S. is opening its doors, and you need to be up to date on the latest — things are happening fast.

Cannabis Capital Conferences

With the U.S. market gradually opening up from a legislative standpoint, cannabis looks like a huge growth industry for the next decade. Cannabis Capital Conferences provide insight as to where the community and business are going next and where your opportunities are. The next dates are as follows:

If you are an accredited individual, fund or family office investor with capital to place, we invite you to be our guest. 

Benzinga Global Fintech Awards

Nov 10, 2020 will be the 6th iteration of this event. Our Global Fintech Awards program focuses on connecting fintech startups to institutions, B2B targets, and potential VC, angel and accredited investors around the world.

Fintech stands to disrupt $4.7 trillion in revenue for traditional finance and is connecting builders and investors globally with huge opportunities in underbanked emerging economies. Money will move differently in the future, and we want you to know about it.

eSports Conferences

The eSports industry will top $1 billion in 2020, with year on year growth of 15.7% and almost 500 million fans around the world. Playing video games  is more than just a kid’s pastime these days — there is very serious money involved.  

Due to certain constraints, we must limit our outreach to accredited investors only. If you need more information about how to become an accredited investor, read over the terms here.

Example of an Event-Driven Investment Strategy

If you’re not accredited or you just can’t make it to any of the events above, don’t worry. The public market provides endless opportunity to capitalize on events. Let’s take a look at an event-driven investment strategy that could be working for you in the very near future.

One of the most common and easily tracked events in the life of any company is earnings. All SEC-regulated companies are required to report earnings quarterly and annually. This strategy takes advantage of quarterly earnings.

Let’s say you want to profit from a big move in a company’s share price because you expect earnings will have a big effect. However, you don’t know which way the price will go. In most cases, you won’t have a direct indication of whether a company will announce success or failure during an earnings report. 

Success and failure are also relative. A stock price can rise on news of lower revenues because the news wasn’t as bad as everyone thought it would be. 

You may think this earnings report is pivotal for the future of the company. Instead of betting on a direction, you can initiate a straddle. Buy a call option and a put option of the same strike price to expire soon after the earnings call.

Whether the stock moves up or down, one of those options will rise in price while the other falls. However, they will not move in equal amounts — that’s just not how options work.

Let’s say you buy a call and a put on Apple stock. The call costs $100, and so does the put. Apple stock is at $300 before earnings.

After earnings, Apple falls to $200 on news that its new iPhone copied a patent from Samsung. The call option will lose almost all of its value and be worth near $0. The put option, however, will rise exponentially — much more than $100 if Apple loses 33.3% of its value in 1 day. So, you will lose $100 on the call option, but you will make up for it many times over with the put option. You profit from the fact that your potential loss is capped but your gains are unlimited. 

Read the article, Three Types of Options Premium to learn more about calls, puts and how to use them in a directionless trade.

Outlook on Event-Driven Investing

Considering we’re in the Information Age, event-driven investing isn’t going anywhere. The sooner you learn to capitalize on the information you have, the more profitable you can become. Just like any system, however, it will become harder to use once more people become familiar with it. The market will become more efficient, leaving less room to profit from traders negotiating on the fair price of a stock.

Some analysts interpret the efficient market hypothesis to mean that an instant news cycle and instant trade execution result in the market absorbing news instantly. If this were true, there would be no opportunity for anyone to profit from news — Wall Street’s trading robots would profit from all of the price inefficiencies before any person had a chance to react.

But for some reason, the market still gives plenty of opportunity to trade on news items and make money. Until bots can function completely without human input — and they can’t yet — they are still slaves to the human weaknesses we program them to have. 

Better Than Jeopardy

The best investors match their personal idiosyncrasies to their investing styles. So if you love taking in information, put every bit of knowledge you have to use in the market using an event-driven investment strategy. 

Eventually, you’ll learn how to closely match your opinion of the market with an investment vehicle. Options are especially good for this, because they are time-based derivatives that allow you to target events. Pay special attention to option setups that can generate profit whether the stock goes up or down