The Most Important Question Traders Overlook

by | Apr 6, 2022 | Options, Stocks

Stock markets are all about the flow of money.

I get that’s not exactly an earth-shattering revelation, but it may surprise you how often traders overlook fundamentals and important questions they should ask themselves before entering a position.

It’s the foundation of valuing and trading the stock market.

The more money that moves into a company, the higher that share price goes…

Likewise, when that money heads out the door, the stock takes a hit…

But not all the money moving in the market is created equally… And, no, I’m not talking about crypto or forex.

While it may be the most important question traders should ask, the truth is the amount of money being spent is only a part of what they need to know.

And it’s long past due that someone points out this important question way too many traders overlook…

Important Questions Traders Overlook: Sometimes It’s ‘Who,’ Not ‘How Much’

After we know how much, the next question traders should ask is, “Who is spending that money?”

This is a critical piece of information to know — so much so that it’s the principle underlying all of my strategies in one way or another.

Let me give you an example…

If I spend $1 million on a company, yeah, that’s a big buy. But I doubt it’s going to make national headlines.

But if someone like Tesla CEO Elon Musk dropped that kind of cash on a stock, you’re probably going to hear the talking heads mention it on TV.

It doesn’t matter much that $1 million to him is like buying a Coke at McDonald’s… But it does matter that Elon Musk is the one spending it.

There’s a good reason for that. Just take a look at what happened Monday when he took a stake in Twitter Inc. (Nasdaq: TWTR).

Twitter 3 Month Chart

Sure, a $2.9 billion buy is going to turn heads no matter who you are, even if you’re a boring, old bank…

But Mr. Musk has the eyes of the market. And when he buys shares of a company, you get moves that can spike cheap, out-of-the-money calls 1,200% or more overnight.

Twitter April 29 $50 Call Price Table

Copyright Barchart

Heck, he’s the kind of person who can move shares of stock and crypto with nothing more than a late-night tweet — for better or worse.

Musk is exceptional even among the Wall Street elite. But he’s far from the only name that can move markets. 

He’s just one example of the big wigs out there — executives, board members, big traders and politicians, etc. — whose share purchases can serve as a catalyst for big moves.

Unlike Mr. Musk, most of these insiders aren’t going to make splashy headlines when they buy stock, even though their imprints can be felt across the market…

That’s why so many traders often overlook one of the most important questions we can ask, and why “Regular Joes” are more likely to miss out or be late to the action.

Throughout April, I’m going to dive into the corners of the market and spotlight answers to this important question and others that most traders tend to overlook…

Keep your eyes on your inbox, because you never know when the next big buy is going to hit.

 

WRITTEN BY<br>Lance Ippolito

WRITTEN BY
Lance Ippolito

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