A lot of folks out there think that war with Iran is a matter of when, not if. Do you know the best way to trade a war? What have stocks done historically when war breaks out?
I remember vividly how I traded when war broke out with Iraq.
I was obviously thrilled when I’d gotten a wire from a fund-of-funds manager in late February 2003.
The markets had been fading and falling as rumors and news and all indicators were that the U.S. was going back into Iraq to get Saddam Hussein, whether he was affiliated with 9/11 and/or Al Queda or not. I’d been heavy in cash to start the year as I was still just months into my new hedge fund launch and I was trading very conservatively with the funds I had raised, some of which came from my old child hood best friend, Neil Patrick Harris. I owned a bunch of Apple, but Google hadn’t yet come public so I didn’t own it yet. JDSU and NOK were both positions of mine too.
But I wanted to make sure my memory was being distorted with the actual outcome in the markets, so I went back and recreated the scenario in my new game stock market trading game Stock Market Events That Mattered (Or Did They?).
Here is the set up. Decide how you’d play it and then click through to find out how well you would have done in real-life back then. And then play through the whole game to find out how you rank among the Top 10 Traders of All-Time at Stock Market Events That Mattered (Or Did They?).
Operation Iraqi Freedom Setup
Today is March 12, 2003. The world is a mess. Europe’s economies are in total disarray with Germany leading the collapse, and all the major indices are hitting new 300-year lows every day. Japan remains mired in its mess and the Nikkei looks to be headed for triple digits. Venezuela is a pit. Argentina is left for dead. The dollar can’t stop falling. Treasuries are through the roof. We’ve got a housing bubble to contend with, still. Serbia’s PM is assassinated today. The UN is falling apart, and the US is burning all bridges. Consumers are over-leveraged and can’t sustain the economy any longer.
President Bush has given Iraqi Dictator Saddam Hussein an ultimatum. A coalition of Allied troops will be invading Iraq. The reason for the invasion is to remove the current tyrannical Saddam Hussein Regime. The relations between the United States and Iraq have been deteriorating for months now. Back in October of last year, President Bush announced that the US would use armed forces to counter Iraq. Reportedly, Iraq has amassed weapons of mass destruction and has repeatedly threatened to attack US ally Israel. This move by the United States will definitely increase tension with many other Middle Eastern nations such as Iran and Turkey. Iraq has the fifth largest military in the world and a highly trained unit known as the Republic Guard. This is most likely going to be a much-extended war, and occupation of the country could run into next year.
General Electric (GE) is an American conglomerate that is typically very cyclical. How do you think this announcement will affect a company like GE? How will GE behave in this type of an economy? Obviously the US is going to spend a lot of money on this war and some of GE’s products could possibly be in demand. Maybe this is a great buying opportunity. The stock has been volatile since the beginning of the year and could be positioned for some short-term price action.
If you are bullish and want to buy GE common stock and hold it for the whole year, click here.
If you are bearish and want to short GE common stock for the whole year, click here.
If you are bullish and want to buy GE calls for a short-term trade, click here.
If you are bearish and decide to buy GE puts for a short-term trade, click here.
If you would rather find something else to trade this month, click here.
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