Trading Toyota

The market is already saying that there is not going to be a quick recovery of Toyota stock. The world’s number one car maker is feeling the heat of an unending product recall. This is the sort of thing that can scare away buyers for years, maybe back to American car makers. How does one go about trading Toyota? What will day trading the politics of Toyota look like?

Toyota, which has benefited from the perception of very well made cars for years finally beat out GM as the world’s number on car maker. This happened at the same time that the Detroit automaker went bankrupt during the current economic downturn. Now Toyota is dealing with gas pedal problems and software glitches take make the break system pause for almost a second before applying the breaks. In a car traveling at 60 miles an hour that is 89 feet before deceleration begins. Toyota stock has dropped just as the automaker was emerging from the effects of the recession. Meanwhile Ford, Nissan, and Honda’s stock prices continue to rise. In trading we often wonder where in the world the action will be in order to be trading where the volume and volatility lie. In this example we look to the automakers as Toyota deals with the brake issues.

Although crashes have been reported, only two injuries and no fatalities have been reported so far from Toyota’s brake problems. The trading Toyota issues are the immediate effects on Toyota stock and the long term effects from a possible defection of millions of loyal customers. Toyota expects to end the fiscal year in March with just under a billion dollar profit. However, the brake problem is expected to cost $2 billion and 100,000 customers in North America and Europe. That later figure may be more damaging. Toyota stock has dropped 12% this year and 5% in one day recently.

The politics of trading Toyota may be just as important as the technical facts. The US government still has a black eye from failures in regulation that led to the recent market crash. There will be heavy political pressure to not only act aggressively with Toyota but to be seen to be. The multi issue recall now includes the popular Prius and Lexus. The U.S. National Highway Traffic Safety Administration recently announced the start of a formal investigation.

The point of this article is not to promote or degrade Toyota. Trading Toyota is to give an example of the thinking that may be useful in taking advantage of current issues in choosing stocks for trading. It is always useful to gain perspective and anticipate the market when trading. No matter how technically skillful trader is it does not good to be watching a stable stock when a whole sector is wobbling back and forth with product recall news. NHTSA’s Office of Defects will be in the news a lot and stock prices may well jump up and down based upon press conference information or the lack of it.

We have spoken about straddles in the recovery market. This options trading strategy may apply to trading Toyota the stock may be quite volatile. Use of a long straddle strategy will allow the trader to profit from stock moves in either direction. Trading the rallies and retreats of the stock market may work here as it applies to Toyota’s competitors. There have to be really big smiles in the offices of Honda, Nissan, and Ford. Maybe there will be smiles on the faces of traders from trading Toyota.

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