Making Money in a Bears Market

The Markets have been falling fast lately and most people either believe it is the end of the world or the markets are at a bottom.   Both conclusions are probably wrong.

First of all it is not the end of the world.  Stocks go up and down that’s what they do. That said, even though the markets are so far down they can always go down further.   It can be very easy to want to find bullish stocks at these undervalued levels.  But the fact that stocks are undervalued isn’t going to increase your odds of making money by being bullish, at least in the short term.

To make money as stocks trend down you need to be bearish.  So how do you make money as the stock market falls?

1.       Short Stocks.  When you short a stock you borrow it from your broker and sell it.  Eventually you will have to go out and buy it back, hopefully for less then what you sold it for.  Instead of buy low sell high this strategy is simply sells high buy low.

2.       Buy Puts.  Puts give you the right to sell a stock at a given price on or before a given day.  As the value of the stock goes down the value of the put will go up.  The great thing about Put options is that they can give you leverage on the downside.  So if the stock goes down 5% the put may have gone up 200%.

3.       Trading Spreads on the bearish side.  Spreads such as bear call, and bear put spreads allow you to profit from the market as long a stocks do not go up past a certain level.  Many traders will prefer this strategy because stocks can go sideways, down, or even up a little and you could still profit from the trade. 

For more on the stock market visit http://www.stocks-simplified.com