Champions League Over Reaction
Last night saw one of the best turnarounds in Champions League history.
Roma turned around a 4-1 first leg deficit, to proceed through on away goals with a fantastic 3-0 win against Barcelona.
The competition favourites, Barcelona, haven’t reached a final since 2014, and a magnificent performance from De Rossi & co. meant that they would be crashing out last night.
However, my focus today is covering the over-reaction of traders on the Football Index. Top players have crashed and burnt!
I have created a timeline, to show the effects of being eliminated from the Champions League.
This is a Pre Match / Post Match split.
Why the sudden price crashes?
The causes of this crash are members trying to avoid a share price collapse, which in turn causes a share price collapse.
The ones that get out early, are in the best position, however, if Barcelona would’ve scored a last minute winner, they would potentially miss the inevitable price rise for Messi and co.
Last week, Paulo Dybala crashed and burnt, when Real Madrid beat Juventus.
Traders would be aware that this could happen to Messi.
However, with a 4-1 lead, it was near impossible to imagine Barcelona being eliminated.
Roma scored their first two goals, and money could be seen exiting Messi. It wasn’t a major decrease, between £0.05 and £0.10.
But, when traders then saw the third Roma goal, they would have rushed to sell Messi.
With everyone putting in Sell Orders for Messi, the price was destined to fall.
Afterall, with no Champs League, there was no demand for Messi and this led to traders Insta Selling. The spreads were ridiculously high, but when traders are faced with split-second decisions, exiting the trade seems to be the decision most often used.
Every 100 Futures listed for sale drops the price by 1p, so if multiple traders are selling their stock, you can see why traders would insta-sell.
Was it an over-reaction?
I can say in my opinion that it’s an over-reaction, but I don’t hold players with the sole purpose of achieving dividends.
A trader may be setup to earn dividends on a daily basis, with Messi being knocked out of the Treble Days on offer, Messi may serve no value to this trader.
When you work out the dividends on offer for champions league though, it doesn’t really make too much sense.
There are only a potential of £0.54 available for Forwards to earn.
It’s very unlikely that Messi would win all £0.54 of the available dividends, he has earnt £0.74 all season, so to claim £0.54 in 3 games would be extraordinary!
Messi also dropped around £0.50, which leads to the question of why he fell so much?
I think it was a bit of a market overreaction, surely the traders didn’t expect Messi to win Top Forward & Top Star for every single Champs League game!
Conclusion
If you are a trader which dumps players that are being eliminated from European Competitions, I am not saying that you are wrong to do so.
I am sure that you have your reasons. Down the line, players that aren’t in the competition may have less chance of winning buzz etc, so depending on the circumstances it may be the right thing to do.
However, it’s times like these where traders sell their holds without a trading plan.
I’m no perfect trader, I sold Dybala at around £4.81 last week, now hes £5.07!
It seems to be the old Football Index saying… hold onto it for long enough and it will recover!
