More Stock Market Advice (trading on the downside) by Betterdaysahead

Thanks to reader Betterdaysahead for this very informative comment which I’m posting here for everyone to read more easily. 

betterdaysahead

In regards to trading the stock market and making money on downside action; I would say that one may want to look into and learn about trading stock options. They can by Puts to play any downside action (Calls for upside action). If they own the stock they can sell Calls. The positive side of buying an option is that the potential loss is limited to the actual amount of the cost of the purchase of the option.

For example, if one spent $1000 on a Dow Jones Index (DJX) Put option with the ideal the DJX is going down further, then if the market did go up the most that one could lose is $1000. There is a ton of info out there online for one to learn about option trading so one can do their research. In my experience, and if one was just getting started. I would suggest buying an option that will expire at least 90 days out, and that is either “at the money” or slightly “in the money.”

The full explanation of these terms can be learned in the many resources available online on how to trade stock options. It would take too much space here to explain. Option trading has limited risk and maximum profit possibility, and in many cases it would be better, and certainly does not require one to have a “lot of money” to trade options, as compared to trying to short sell an actual stock(s) which could lead to unlimited losses, even of money not in an account. So I would say to your readers that if they want to pursue making money in the markets on downside action they should strongly consider trading stock options. Additionally, the profits come faster and at a greater percentage rate than trading the actual stock.

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More Stock Market Advice (trading on the downside) by Betterdaysahead

2 thoughts on “More Stock Market Advice (trading on the downside) by Betterdaysahead

  1. ftrsman says:

    Hey, Denise, great site, thanks so sharing so freely! Didn’t think I’d ever write in, but I have to say something about trading options. While put options are a way to make $ if something goes down, and betterdaysahead is right, technically, saying ‘limited risk with maximum potential”‘, that’s making it sound a little too good. Over 95% of regular investors lose every cent they ever put into an options contract, so their ‘limited risk’ keeps happening over and over. (The minute you buy an options contract it starts losing value, because it has an expiration date, and few non-pros understand when an option is fairly priced to begin with). Another poster is right in saying it should be left to professsionals. Right now the options market is really screwy, because people are paying for fear and the normal parameters of price/time/volatility just aren’t working (IOW, the move has to be so big, and relatively fast, before the risk/reward pays off – it’s not simple like ‘the dow goes down 5%, your option goes up 5 or 10 or 20%. ‘ ). A lot of pro options traders are staying on the sidelines because pricing is so screwed right now. Besides, any pro will tell you that a newbie who wants to trade options oughta not just take a basic course online or wherever but spend a year or more ‘paper trading’, meaning, practicing on paper, and if they start doing that right now, a year from now the ‘big move’ may be over (but the next year may give a good education). If they really want to, s/he could give some $ to a pro options trader, but you usually have to start with $50K-100K, and I don’t know if I’d be trying someone new out right now. Don’t mean to be a joykill, but don’t want to see anyone hurt. There’s nothing wrong with cash.

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