While working at Investment bank I often met customers who thought profit can me made only when stocks and indexes are rising.
Nope! Not at all!
There are several ways to make profit from falling market. One option is ‘Selling Short” this is a method were you would be selling stock that you actually do not have.
For instance right now Stock A costs 100dollars. but if I believe the price would drop soon then while accepting on the trading account conditions of trading with margin and Selling Short I can virtually “Borrow ” the stock, sell them now with 100 dollar and “Buy back” cheaper once the price has dropped. Yeah – when the price would happen to raise I will be in problem – especially if I did not have the money to buy the stocks back with higher price…. 🙂
Another version is trading with “Put” options. Literally Put options are Sell options – so in very simple speech they are contracts that would allow me to SELL stock in future with todays price.
So if today Corporation A stocks cost 100 dollar per each, and I believe that after certain time the price would drop I can purchase a contract that would allow me to sell Corporation A stock in Future with todays price. So now I have the contract and the prices of the stock will drop….. What will happen with my contract? Yes – it adds value! More the prices of Corporation A stock will drop – more valuable my contract will get.
If corporation A stocks would cost 50 dollar each. Wouldnt you love to have a contract in hand that allows you to sell those stocks with 100 dollar from each? Ofcourse you would!
So in very simply explained – that is the magic of Put options.
So while trading on volatile market or on falling market – instead of buying stock you buy just Put option – and it will act like a stock for you. If market falls – your option adds up value. If market raises – your option will become worthless. Simple as that.
I love trading with options, and moreover I love trading with put options. As always the falls are ore sudden and sharp than raises – so profit from Put options is also more fast to come.
One place that allows you to start trading with Put and Call options from initial deposit as low as 10 dollars only is IQ Option. But careful here – money is easy to come but it can also go as easy 🙂 I have tried it out 🙂
Set your limits and goals and follow them!
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