Put Options and Power Ratings – Investing, Even in A Falling Market

With all the talk about recessions, a mortgage crisis, a stressed credit market, meilleurscasino and the falling value of the dollar in the United States it would appear that the stock market is definitely a place to avoid putting your money. While this may be generally true in the short run for the market as a whole, in the long run things will even out. But if you are the type that cannot wait that long there are other avenues you may take to invest profitably such as put options or short term trading.

As confusing as it may first sound, it is possible to make an investment where you profit from a drop in the price of the stock. This investment is called the put option. With a put option you pay a premium so you will have the right, but not the obligation, forbes to sell a stock at a certain price within a specific time for the price the stock was at the time you made the deal. The following example will explain.

If stock XYZ is currently at $50 per share you can pay for the right to sell that stock (usually in lots of 100) to a buyer for $50 no matter what the price is in the future. If the price of the stock becomes $45 you can exercise your option, purchase the shares of XYZ for $45 and then sell them for $50 to complete the option. Your profit on that deal is then ($50 x 100 – $45 x 100 – premium paid).

If waiting for stocks to fall is not your option you can always try to find that diamond in the ruff that will be bouncing back up in price. An important thing to remember about stocks is that the lower they drop in price, the more likely they are to rise in price in the future. Forbes has taken this idea and perfected it, creating the Short Term Power Ratings®. When a stock reaches a rating of 8 or above (on a 10 point scale made by Forbes) they have found that the average 5 day return on investment outperforms the average stock by an 8 to 1 margin.

Even amidst all the negative speculation or a bear’s market you can still find ways to make money investing. Remember to learn and then stick to what you know. Keep investing. wealth4living


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