how can u make profit if a stock is coming down?

Question

I have heard that dealers are even making a gain in downwards market

Answer 1

You sell a stock that you don't have on the way down, and then buy it at a cheaper price later to complete the transaction.

Answer 2

There are several of ways.
1. sell the stock short. You borrow the stock from your broker and sell it. After it drops in price you buy it back. There is some risk in this approach. The stock might go up. And if it is a dividend paying stock, you are the one paying the dividend.

2. buy a put on the stock. Not all stocks have puts that are traded buy many do. If you are absolutely sure the the stock is going to fall in price, this is the best way to make a ton of money. If the stock is selling for 80 a share, you can buy a put to sell the stock at 80 for maybe $2.00 a share for a 3 month put. If at the end of 3 months the stock is selling for 60, you have made 18 per share, 9 times your investment.

3. Sell a naked call. This does not require any cash at all. In fact you sell the call and pocket the money if the stock closes below the call price. If the stock closes above the call price, you are hung out to dry.

Answer 3

First of all, I don't buy stocks that I think will go down. I buy stocks that are solid, and I think will go up.

When they go up about 25% or so, I sell a covered call on it, for at least a year in the future, and for at least 25% more than I paid for it, and with a hit price at least 25% higher than the current price.

This way, I make an immediate 25% profit, above my 25% gain.

If the stock never reaches the hit price by the expiration date, I keep the stock, I keep the money from the sale of the covered call. I sell another covered call to make more money.

If the stock goes up, and it reaches the hit price, the stock sells for 50% more than I paid for it, plus I keep the 25% from the covered call. It is more than 1 year so I only have to pay the lower long term capital gains tax.

If the stock goes down, the covered call expires worthless, I keep the 25% from selling the covered call, and sell another covered call, or sell the stock if I wish.

If the stock goes way up, like 150%, I will still only gain 75% because they will buy it for the hit price. That is the risk.

If the stock goes way down, the 25% I made on selling the covered call helps reduce the loss.

This is different from shorting a stock, which has extreme risk. If you sell a stock that you do not own, and it goes down, you make money. The most a stock can go down, is to zero. But there is no limit to how much it can go up. If you sell a stock you do not own, and it quarduples in price, you can lose 3 times what you sold the stock for.

Answer 4

It's called shorting a stock. Basically you put a sell order in for a stock you don't own. Then assuming the price on the stock HAS DROPPED you settle the deal by buying the stock 3 days later and settle that deal with it. Your profit is the difference between the price you sold the stock you didn't have at and the price that you bought it later at to settle the deal.

Clear? Nope I didn't think so .

PS. You'll have to borrow an Investment bank to do it.

Answer 5

Dont get into shorting stocks. Is too risky. Stay with conventional investing and a long term strategy. Or take a look at the precious metals market. This is another solid opportunity to make a ton of money long term. With the increased demand for gold, platinum and palladium by the emerging markets like China, India and Brazil, the price for these metals are skyrocketing. Take a look at this site for more information:

http://preciousmetalsinvesting.blogspot.com/

Answer 6

1. Selling the stock short
2. Buying put options
3. Selling call options

Answer 7

Learn about options trading.... lots and lots of ways to make money in any market... try Optionetics.com if you choose to become a member or go to a seminar let me know.. [e-mail]

Answer 8

Selling short.

Answer 9

It called shorting a stock. See: http://www.fool.com/FoolFAQ/FoolFAQ0033.htm

Answer 10

u dont