There are a lot of experts out there who are claiming that the market will fall back down and create another great depression. In reality no one knows were the market will be for sure, but if it does go down there are still plenty of ways to make money.
In fact money can come faster in a bears market then in a bulls market because when stocks go down they tend to go down pretty fast, faster movements means faster profits. So, just how can you make money when your stock goes down? Simple there are 3 big methods that allow you to profit from a falling stock.
1. Shorting Stocks
Shorting is the process of borrowing a stock from your broker and selling it on the open market. The idea is to sell it before the stock is going to o down. This way when the stock does go down you can buy it back at that lower price and return it to your broker.
2. Buying Puts
Put options give traders a way to make much higher returns in a falling market. When you buy a put you simply buy the right to sell a stock at a given price. As the price of the stock goes down your option becomes worth more. After all if you have the right to sell a stock at $50 it should be worth more if the stock is trading at $30 then if it is trading at $60.
3. Selling Call Options
The last strategy involves selling call options. When you sell a call option you give another investor to right to buy the stock from you at a given price. As long as the stock stays below the strike price of the call it eventually expires worthless and you walk away with the money.
There is one downside to selling calls, and that is the amount that you can lose is unlimited. This is because there is no limit to how high the stock can go. However you can still get around this, for example if you sell the $70 call you can always buy the $75 call giving you less risk because the most you can lose is $5. Your gain is also limited, but it can still be worth it.
Learning what caused the great depression and how to make money in that situation can help you to prepare in case we see another crash like the Stock Market Crash of 1929
Tags: investing, stock investing, stock market, stock market crash, stock trading, stocks