Falling Knives Vary

Some traders make their living (and dying) by trading nothing but falling knives, but falling knives are not all the same. I believe it is one thing to trade a stock that drops after an earnings warning or a slowdown -- the drop is by no means guaranteed to be confined to the few days around the release, but usually you have all the information at hand. Anytime you have an accounting issue, an SEC inquiry, an unknown loss or something else that is is going to require follow-up or more information, however, it is more than a falling knife -- for instance, Knight Capital Group (KCG) was more than just a falling knife yesterday -- and the initial plays under such conditions favor getting long volatility over getting long the stock. Even betting on more downside is hard since a resolution or further information can be positive.

LinkedIn (LNKD) is sure to attract lots of attention tonight. It may not actually be social media, but it is lumped into that space. I did a chart on July 27 coming into today, so it is worth a follow-up here into earnings....337 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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