Making Money During a Stock Market Crash
by: Shaun Rosenberg
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In fact stock crashes have the potential to make traders much quicker gains because stocks go down faster then they go up. So, how can you make money in a stock market crash? Here are 3 strategies that can help traders profit from a falling market.
1. Shorting
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. Buy Put Options
Puts allow an investor to have the right to sell a given stock at a given price at some point in the future. So, if you buy a put it will increase in value and make you money as the stock goes down. This is because even though the stock is going down in value you still have the ability to sell it at the same price.
3. Selling Calls
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.
The downside to this is that the stock could potentially shoot up to infinity. So your risk is unlimited. To get around that you have to buy another call option at a higher strike price to limit your risk. For example if you sell the $40 call you can also buy the $45 call. This would limit your risk to $5 and you could still make money from the difference between the two stocks.
About the Author
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
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