“When the Nasdaq 100 rebalancing was announced before the April 5 stock market opening, the expectation was that opportunities might arise as we approached the May 2 implementation, based on April 29 closing prices,” John Tobey writes for Seeking Alpha. “The best possibilities seemed to be an Apple (AAPL) sell-off (its allocation was being significantly decreased) and a Microsoft (MSFT) run-up (being significantly increased).”
The strategies were straightforward:
• Use price drop to build or expand an Apple position.
• Use price rise to reduce or liquidate a Microsoft position.
• Hedge: Buy Microsoft and sell Apple (then reverse the positions when the rebalancing effects occurred).
Tobey writes, “A key problem, particularly for the hedge, was that both companies would be reporting earnings: Apple after the close on April 20 and Microsoft after the close on April 28. Earnings could more than offset any rebalancing moves, so that left April 29 and May 2 as the only viable dates.”
Read more in the full article, which includes a graph shows how the two stocks performed, from just before the Nasdaq press release to May 2’s close, here.
Related articles:
Analyst: Buy Apple stock on any Nasdaq rebalancing weakness – April 5, 2011
Apple has grown so huge, Nasdaq-100 index to undergo rare rebalancing to reduce AAPL influence – April 5, 2011