Trading tech stocks: lessons from major product launches

However, the launch of the iPhone 3G in June 2008 saw Apple’s price fall by 6.4% over an equivalent period, as investors factored in increased competition in the smartphone space and a lack of significant improvements over the previous device.

2. Consider short-term and long-term effects

It’s important to recognise that there may be opportunities to place both short and long-term trades in response to a product or service launch. Microsoft’s share price dropped by 6.04% when it announced the first Xbox, while Amazon’s share price fell by 15.5% after it announced the launch of its Prime delivery service.

In both cases, the markets seemed to factor in the uncertainty surrounding these launches – which seemed like risky moves for both companies at the time – creating an opportunity for traders to go short during the hype cycle. However, as we now know, both products turned out to be great success stories for the firms, so there would also have been an opportunity to buy on the dip for position traders taking an optimistic view of the companies’ futures.

3. Trade the effects on competitors and suppliers

There may also be opportunities to trade the effect of a product launch on other listed companies, including competitors, retailers and suppliers. For example, shares in Vodafone and Telefonica fell during the seven-day hype cycle surrounding the release of the iPhone X in September 2017. These falls were likely driven by lower sales forecasts – the result of the high price point of the newest Apple device – with some analysts also citing a delayed shipment date of 3 November 2017 as a possible cause.

Several suppliers’ shares also fell in the aftermath of Apple’s announcement, including Dialog Semiconductor, STMicroelectronics, ams AG and Taiwan Semiconductor Manufacturing, as investors factored in lower revenue expectations.

4. You can trade before, during and after the announcement

Finally, it is worth remembering that there are likely to be opportunities to trade before, during and after any product launch, as investors adjust their portfolios in response to developments throughout the product launch cycle:

Before

Product announcements are usually scheduled weeks or months in advance, with press reports of these events often providing the first clues as to what can be expected. And while firms such as Apple can be very secretive about what is going to be announced at their scheduled meetings, details will often leak to mainstream news organisations ahead of time – with the markets moving in response to this information.

During

Because the impact of leaked product details will likely be priced into the markets ahead of an announcement, any difference between what was expected and what is actually announced can have a very pronounced effect on the company’s stock. As a result, there may be opportunities to trade if there are any surprises.

After

With the excitement of the product announcement out of the way, the markets are likely to move in the days and weeks that follow. Investors may adjust their portfolios in response to consumer and media reactions, so traders should review their fundamental analysis, and positions, as things develop. Remember, companies will usually present only what they want consumers and investors to see, so any sub-optimal features that could affect sales – such as poor battery life – may not come out until after the announcement.