How big money manipulates the market

Jim Cramer — at least he's honest. I usually see stocks plummet shortly after he gasses them up. Here's a classic clip; he's explaining how some hedge funds operate. If they have options expiring and the underlying is not at the right price, they would try to talk the stock down, and spend some money shorting it ($5 million he says) or get some analysts and press to play up some bad gossip.



He also notes that for not too much money you could get the future market to go up or down in the morning so that the obligatory "futures up, stocks set to open higher" headlines can get run. So pay no attention to those. In fact it might be just to get things optimistic, get the buyers in there and then whoever is running the operation for the day can pull the plug on the market and suck down all the suckers.

Moral:

• If big money is doing something, get out of the way or find a way to ride the wave.
• Don't take news at face value.
• Even if you are only trading equities, you should know what the options markets are doing. A lot of big money is there and it has a deep effect on the underlying. More on that later.