There are a lot of people who think that we are going torwards another great depression. Is it true? Well know one knows what will happen for sure, but we can prepare for it. There are a number of ways to make money during a stock market crash.
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 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. Put Options
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 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.