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. Short Stocks
To make money you buy low and sell high, but it does not have to be in that order. When you short a stock you borrow it from your broker and then sell it. Later on you can buy it back and return it. The goal is to sell the stock before it decreases in price then buy it back at the cheaper price keeping the difference.
2. Buy Put Options
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
Another type of option is called a call option. When you sell a call option you give another trader the right to buy the stock from you at a given price. For this you recieve a premium. If the stock stays below that price the call will expire worthless and you walk away with the free premium.
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
categories: stock market crash,stock trading,stock investing,stock market,stocks,investing
