Get Profit from a Falling Stock

To know most basic principals to get profit out of falling stock read the following article. In this, we have discussed shorting stock versus buying "put" options.

For an illustration, you are just selling a stock, taking in the cash for the sale, and "buying back" or covering the sale at a cheaper price. As a result, if you "short" of ABC Company at 60 Rs and you sold 1000 shares, you took in 60,000 Rs. At this instant if, ABC falls to 50, and you "Cover" you are buying it back cheaper. In this case, you will spend 50,000 Rs. The difference between where you sold and what you spent, 10000 Rs. is your profit.

That really is as easy and it is no more risky than going long as long as you use stops to protect yourself. Ever since the market is volatile and goes up and down, if you only opt for the long-term games then you are losing countless income possibilities.

However, you will face some troubles with this strategy. Firstly, you will require a margin account to do it. All short sales are through margin. Second, it consume your buying influence since when you go short, you are investing that position with margin that will fasten your money.

The other game in stock market is a put option. Anybody is able to and must use call and put options as a trading strategy. In this, the risk is limited, and the returns can be unusual because of the advantage innate in options. You are placing a gamble with a put option, which the stock is going to fall. If you win the bet, you will win large point, and if you lost the bet, your loss is limited to how much you bet.

For an illustration if you short ABC at 100 and it falls to 60 fantastic, you made 40 points and 40%. However, if you buy put options for 1.75 and they go to 10.00, the percentage will be over 500%. The cost is next to nothing, to get such a shot at big returns.