Demystifying the fall in RIL’s stock price during AGM announcements

With the new Investors joining hands with Reliance Jio every other week, the AGM (Annual General Meeting) announcements were expected to make way for the stock price towards a new all time high. While other stocks have been struggling to reach pre-covid levels, RIL’s stock price has already increased above pre-covid levels and has been making new all time highs every week.

The AGM started with the big announcement of Google investing Rs. 33,737 Cr for a 7.7% stake in Jio platforms. As a retail trader, I would have been very bullish on the stock with this news. But, the stock price continued to fall even after such positive announcements. Why did it happen? Why the stock did not rose even after positive news?

Why the stock price fell?

I explored the reason behind this fall and landed on this article by Livemint. The article mentioned two reasons for the fall. First one, the Investors were disappointed about the delay of Saudi Aramco deal and the next reason was profit booking by the big players.

The first reason did not seem very convincing to me as the statement became true only after the prices started falling. This statement didn’t have any strong quantitative proof backing it. If the prices would have remained flat, the statement would have been “Investors seemed unaffected by the delay in Saudi Aramco deal”.

However, the other reason which mentioned profit booking by large Institutional players made sense. This also matched perfectly with a popular saying in the markets “Buy on Rumor, Sell on News”. The basic principles of technical analysis also suggests that the price is always discounted. So, any latest news or announcements are always factored in the stock price.

The stock price increased almost 5%, a week before AGM. This meant all the major action started a week earlier as smart money started increasing RIL’s stock price. They bought the stock on rumors of a positive news and sold when the news broke out. Thus shattering the price of the stock.

Should we really care?

But, do we really need to care for the reason behind the fall? I believe it is of no use to discuss it as the bird had already devoured the field. And even if we know the reason, it might not have a worthwhile trading accuracy. The retail traders should refrain from trading based on news. It might give you profit once or twice, but in the long term it will only help you blow up your capital.

So, what should a retail trader do to profit from such events? The best way is to employ option credit strategies like a bear call spread, bull put spread or a straddle, a day before. We know that the volatility is at a peek before such events and thus the premiums are high for options. After the announcements, the volatility crushes and the premiums erode. Thus making you a good Intraday profit.

A straddle may be very risky if the stock gaps up or down as it happened with Infosys on 16 July, 2020. Credit strategies with a defined loss (hedged) can be a good strategy to bet on without worrying about the gap ups or downs.

That’s all for today. Stay tuned!