How can I profit from falling stocks?

Question

Technically speaking?

Answer 1

The most Basic,Direct way To Profit from Falling Stocks requires what is called a SHORT SELL Position.

A SHORT is ...Selling Stock that You Do Not Own.
The mechanism to accomplish that is to BORROW
That stock,,,and then Sell it.

That act puts 2 Things in Your Account:
#1>The Cash Proceeds from the SALE
#2>The DEBT of the stock that You Borrowed

When the Stock Drops in price,,You BUY the stock to replace
the stock You Borrowed.
*Your "Debt" is cleared by virtue of Returning the Borrowed stock
*Your Profit is the Difference between the HIGH Price you Short-Sold it,,,and the Lower Price at which you Bought the Replacement stock.

That seems odd to many people.
Amazing the number of active stock traders who dont seem to grasp the concept.

A simple analogy:
You need a Dozen Eggs,but dont have them.
Suppose Eggs are selling for $1/Dozen,,,and that You Know they will be On Sale Next Week for $.70/Dozen.

So You BORROW the Dozen from Me...with a promise to replace them in the future.
You give me an "I-O-U 1 Dozen Eggs"
Ok,,Next Week,,You go buy a Dozen at $.70 and replace the Dozen you Owe me.
We're square,,You're debt is squared,,,
and You have $.30 More in your pocket than if you'd bought the Eggs at the Current Price of $1 .

Makes No Difference to me what You paid,,,
I have my Dozen of eggs back.

To Sell Short requires a certain type of Brokerage Account,,called a Margin Account.
It is basically a "Line of Credit" type of account which accomodates You incurring the "Debt" of BORROWING STOCK to SELL.
You REPAY the debt by Replacing the Borrowed STOCK.

If You can BUY the replacement stock at a LOWER Price than you Sold at----You Profit.

If the Stock price happens to RISE,,,you'll have to Buy replacement stock at a Higher price,,,,,and You'd LOSE money on the transaction.

Short Selling still obeys the premise of "BUY LOW>Sell High" in order to PROFIT.
The difference is a matter of "Pay me Now,vs Pay me Later"

.....................................................
A ShortSell position or Option Put would profit from a decline in Share Price.

Determining a particular stock's relatives/comparables will often reveal Weak stocks,or Overbought ones in the group.
Those will usually be the most likely suspects in the sector.

You can also study Historicals of a Individual stock & of it's sector,,,and discern any seasonal or cyclical aspects.
From that You can anticipate those tradiditional corrections(declines in price)

As well as creating as Leader/Laggard list of the Bunch.

If the motives for a Stock's fall are based upon News/Events etc,,
Consider whether the Impact is Specific to that company or generic-to it's industry or business niche.

There's also usually some Contrary Implications.

Example-A,,"If Oil Falls,,Holiday Retail Rises"--
the premise is that event is so influential on general economy AND people's household budget---Falling Oil Boosts both their Consumer confidence And their immediate spending power.

Example-B,,"If Stock A Drops on Individual Specific problems,,
Then it's Direct Competitor Stock B becomes more an attractive position to maintain exposure to that particular Biz Niche/Industry

Example-C,,A Stock can easily be Oversold--Fall TOO far due to a specific cause.
Mkt's famous for Overreacting.
The Steep Sudden Drop Might be a BUYING BARGAIN PRICE.
It Could be Fundamentally Oversold.
And it also Could be TECHNICALLY Oversold,,,,and give a strong signal of a releif bounce--a rebound in Price-- being due.

Very little happens in a vacuum--
Any time A stock,,or a Group of Stocks,,or an Industry Sector,,or even Broad Mkt Falls(or rises)...it triggers a ripple thru a wide range of interrelated issues.

You can make $$$:
*On the specific Stock's Fall
*On it's releif rally/bounce
*On it's actual Recovery
*On what Else/Others It drags down with it
*On THAT stuff's bounce/recovery
*On what It's Fall indicates in terms of Cycle/Seasonal Timing
*On what The Falling Stock RAISES,such as direct competitors
*On Rotation,,where the Cash Leaving From and is Going TO.

And Other stuff.

Most stocks are just One in a house of cards,,
Their activity will trigger action in a variety of ways,,for several reasons,,and in a variety of stocks.

No matter WHAT happens,,,an Opportunity of some kind is created somewhere.

It's NOT "easy money",,,it takes Time and Experience to learn the REALISTIC expectations of relationships,,,What/How to anticipate,,,what Signals to look for,,how to appraise the Strength of them,,,,,and when/where to Position one's self to capture the Opportunity.
Then how to monitor it "real-time" as it plays out.

One stock falling has implications Beyond itself,,,and often creates opportunities both Long & Short elsewhere.

The Most BASIC,straighforward approach to capitalize on Falling Stocks is to SHORT SELL them.
--ie:Borrow shares to Sell while Price is High,,,then replace those borrowed shares at the Lowered price.
And pocket the difference.

In Actual Practice,,Falling Stocks generate a variety of profit opportunities based on a number of stock trading tactics.
And ONE stocks fall can (and Does) influence a number of Other stocks.
A particular Stock can generate Profit Opportunities outside itself.

I 'spose it's "advanced techniques",,but there's several ways to profit from falling stocks.

Hope any of that makes any sense

Answer 2

if your bet is that the direction for a stock is heading down there are 3 options. Selling short, buy Put Options or sell Call Options. Selling short is likely going to be done in your margin account. You are selling borrowed shares at today's market price and then later buying them at a future market price - hopefully much lower. The big risk is that if the market goes up your loss potential is unlimited because you might have to buy those shares at an unimagineably high price. Selling Call options will probably require additional approval from your broker. This is an income strategy with a limited upside compared the risk of unlimited loss if the stock goes UP. You collect a premium up front but agree to deliver 100 shares for each contract, which you will have to do if the stock goes up. The final idea is Buying Put options. First off.. your loss is limited to the premium you pay up front. With the Put option strategy you are essentially doing the same thing as selling short except you get to leverage many more shares while you don't have to worry about additional losses if the stock goes up.

Answer 3

You should never buy stocks that are falling in price. Ask all the idiots that tried to short Enron. Or ask all the geniuses that bought Cisco when it slid from $80 to $5.

If you have to ask how to short a stock, don't do it. There are investors on Wall Street that will eat you alive. They want you to get involved in this phenom of calling short and strike price and puts. Let those guys do all that and lose. You always hear the winners, never the losers. How about that guy from Amaranth. Tried to short $9 Billion in energy stocks and blew it.

Answer 4

For individual stocks:

1) Short selling the stock
2) Buying a put option
3) Writing/Selling a call option
4) Shorting a Singe Stock Futures contract on the stock if SSF's are traded on that issue.

For the stock market in general:

1) Buying put options on the index
2) Writing/selling call options on the index
3) Shorting stock index futures contracts

Answer 5

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Answer 6

sell short, this means that when you buy at short, this is so the stock will go down in price.

Answer 7

make sell position in derivative with sell signal on chart aptistock freeware

and buy at lower level with buy signal

diffreance is ur profit

Answer 8

short sell
using Option

Answer 9

sshort sell