Everyone is saying that this can be the next great depression. It seems like a lot of people want to believe that doom and gloom will happen. Well, first of all, no one knows exactly what will happen in the future, and second there are ways to make money even if the stock market does crash.
Actually traders can make large returns faster in a bears market then in a bulls market. That is because stocks tend to climb up stairs and fall out elevators. There are 3 different strategies that allow you to make money during a stock market crash.
1. Shorting
Shorting is the process of borrowing stock and then returning it. By shorting a stock you simply borrow it from your broker and then sell it. Later on you will have to buy it back and return it to your broker. The idea is to sell stocks high and buy them back lower.
2. Buying Puts
A put option gives the buyer the right to sell a stock at a given price on or before a given date. For example if you buy the $80 put on stock XYZ you would have the ability to sell it at $80. Now as the stock goes lower and lower your $80 put becomes worth more and more.
3. Selling Calls
Another strategy is called the bear call spread. In this scenario you simply sell another trader the right to buy a stock at a specific price. As long as the stock stays below that price the call option will eventually expire worthless making you money.
Of course if it goes up there is no limit to how high it can go, so the risk is unlimited unless you buy a higher call option. For instance if you sell the $50 call for $5 and buy the $55 call for $3 you would profit from the difference, $2. You would also limit your potential loss to $5 because even if the stock goes to infinity you can always buy it at $55.
Actually traders can make large returns faster in a bears market then in a bulls market. That is because stocks tend to climb up stairs and fall out elevators. There are 3 different strategies that allow you to make money during a stock market crash.
1. Shorting
Shorting is the process of borrowing stock and then returning it. By shorting a stock you simply borrow it from your broker and then sell it. Later on you will have to buy it back and return it to your broker. The idea is to sell stocks high and buy them back lower.
2. Buying Puts
A put option gives the buyer the right to sell a stock at a given price on or before a given date. For example if you buy the $80 put on stock XYZ you would have the ability to sell it at $80. Now as the stock goes lower and lower your $80 put becomes worth more and more.
3. Selling Calls
Another strategy is called the bear call spread. In this scenario you simply sell another trader the right to buy a stock at a specific price. As long as the stock stays below that price the call option will eventually expire worthless making you money.
Of course if it goes up there is no limit to how high it can go, so the risk is unlimited unless you buy a higher call option. For instance if you sell the $50 call for $5 and buy the $55 call for $3 you would profit from the difference, $2. You would also limit your potential loss to $5 because even if the stock goes to infinity you can always buy it at $55.
About the Author:
Learning about the causes of the great depressionand how to make money in that situation can help you to prepare in case we see another crash like the 1929 Crash of Stock Market
No comments:
Post a Comment