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How Much Did Investors Make Off of These Two Giant Headlines?

All of the big news stories are tradable but figuring out how to make money when a company becomes news driven starts with examining the past. Each of these stories proves that when you put fear aside and buy when others are selling, there’s big money to be made.

The Boeing Dreamliner Fiasco

DreamlinerHappy New Year to Boeing (NYSE: BA)! The Dreamliner project was three years behind schedule and well over budget before the first aircraft finally took to the skies in October 2011. All seemed well until Monday, Jan. 7, 2013 when a fire broke out on a Japan Airlines 787 while sitting at Boston’s Logan Airport.

Then, the next day at the same airport, a fuel leak that spilled 40 gallons of jet fuel was reported just before the plane was to take off. And because two PR nightmares isn’t enough for one week, the following day, an All Nippon Airways flight was canceled after the crew discovered an error message related to the 787’s braking system.

All of this led the Federal Aviation Administration to ground all 787s on Jan. 16. The rest of the world followed the FAA’s lead. The company had to find a fix for its battery system said to be the cause of the fire. It wasn’t until May 20 that a 787 took to the skies and presumably, the nightmare was over.

If you traded these events, would you have made any money? If you shorted the stock on Jan. 7 and held for one week, you would have lost less than one percent. There was a lot of volatility in that week—a perfect set up for day traders—but you made a whole lot of nothing if you held a short position through the three events.

Looking back, the best way to trade the event would have been to go long. The stock remained mostly flat until March. As it became clear that a fix would not require a major redesign, the stock took off. By the time the airline was cleared to fly, the stock had risen 30 percent.

But what about the recent Heathrow fire? July 12, a 787 caught fire while sitting unoccupied at London’s Heathrow Airport. When news of the fire broke, the stock plummeted 7 percent within an hour but it quickly became clear that the fire was relatively minor. If you took a chance and purchased the stock when it was down 5 percent that day, you would have realized a 10 percent gain if you held it until the following Friday.

Maybe you’re not a trader and you saw a buying opportunity back in January around the time news broke. If you would have purchased the stock on Jan. 9 and held it through the trading day August 8, you would have booked gains of 38 percent!

In this case, being the contrarian and doing a little Buffett-style investing and buying when others were worried would have paid off.

BP Deepwater Horizon Oil Spill

3898808431_94ab357ced_zOn April 20, 2010, the BP (NYSE: BP)-operated Deepwater Horizon drilling rig, owned by Transocean (NYSE: RIG) and contracted by Halliburton (NYSE: HAL) was drilling at around 10,000 feet when high-pressure methane gas rose into the drilling rig causing an explosion on the platform. On April 22, a leak was discovered which, at the time, BP said was relatively minor.

As the world found out, it was everything but minor. It ended up gushing about 62,000 gallons per day and by the time, the well was capped 87 days later July 15, 4.9 million barrels of oil had spilled into the Gulf of Mexico. Remember CNBC’s constant live feed of the gushing well and the horrific pictures of oil-covered wildlife? Fisheries and tourism were wiped out and at the time, so was BP’s stock price.

Three years after the spill, BP is still feeling the effects. It is engaged in court battles relating to the fund it setup to reimburse those financially affected by event. BP is claiming corruption on the part of those overseeing the fund but, at least so far, its request to stop payouts until the investigations are complete, have failed to sway the courts.

Despite the ongoing court battles, Wall Street has largely put story behind it, giving us the opportunity to see the results of trading activities around the incident.

If you were a short-term trader and shorted BP for a week after the leak was discovered, you would have made 12 percent on the trade. If you shorted the name for a month, you made 26 percent, not taking into account any fees associated with the short. If you held the short for two months, you made 50 percent, and if you would have covered the trade when the well was capped, you made about 35 percent.

On June 9, 2010, hedge fund manager Whitney Tilson appeared on CNBC revealing that he had been picking up shares of BP. At the time, there was talk that BP would have to file for bankruptcy because of the event. Tilson saw that notion as silly and picked up shares on the cheap. If you would have followed Tilson’s lead and went long BP June 9, your purchase price was likely around $29.50.

If, like Tilson, you were still holding the stock today, you’re now up 41 percent. With regulatory overhang still plaguing the stock, BP longs continue to hold the stock believing that once all of the court battles are complete and the fund set up to reimburse local businesses is closed, the stock could head toward its pre-disaster highs of $60.

But what about Transocean and Halliburton?

If you had gone long Transocean on that same June 9 date, you would be less than enthused if you were still a holder. The stock is up about 14 percent today. If you had sold in March 2011, you would have been much happier with your 88 percent gain.

The better play would have been Halliburton. The stock is up 104 percent since June 9, 2010.

(Note: prices were not adjusted for dividends and splits)

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