Stock Market

29.

How To Make Profit From Falling Stocks

Regardless of their bloopers in the field of international relations, politics and societal issues, Americans have always made important contributions in the field of economics. Whether it is pure economic theory or workable, practical economic models of organisation, that nation has always led the way. Despite the intrinsically oppressive and unstable nature of their international economic policies, the American economic model remains the most popular and most followed paradigm in the world. One of their other major contributions in this regard remain the long term planning for making profits in the stock market, especially when things are dormant and the market looks down. 

From the experiences of the recent past, wherein the mortgaged backed securities bubble has deeply checked market buoyancy, it becomes necessary for private investors to understand the contours of institutionally conditioned trends. While stocks are on the upswing, as they were in India in the early years of this century, buyers tend to go with the flow and forget the fact that what goes up; is bound to come down as well. And the pace if it might not necessarily be comfortable to those concerned about maintaining or gaining their profits. Hence, it becomes absolutely essential for them to strategise in the times of upswing and determine ways to make profit from falling stocks as well. 

How To Make Profit From Falling Stocks: The Strategies

There are a great multitude of self-proclaimed pundits on the internet, who claim to have an answer to the question- how to make profit from falling stocks? However, it is necessary to understand that institutional advice is anytime reliable over individual advice as it is backed by years of experience and collective wisdom of professional advisors. One of the most popular strategies to make profit from falling stocks is short selling the depreciating stocks. All this method needs is a modicum of understanding on the part of the investor. Although a layman would appreciate the business sense in usual practice of buying shares at low prices and selling them at high prices, shorting stocks requires more developed nuances. In effect, this involves going backwards in a sense- selling stocks when prices are high and buying them when prices are low. This often proves beneficial for informed investors in times of sustained correction or a severe fall in the market. 

Another option in this regard is purchasing put options. After a good appreciation of a particular stock, the general tendency is for investors to sell off their shares to reap obvious benefits. However, when this happens, the share price drops and in effect inculcates a trend to sell. A smart investor is able to see through it and makes handsome benefits out of it. In a similar situation, there is another strategy to ensure profits. After a period of appreciation an investor can also choose to sell call options. Especially a prolonged period of stocks appreciation is followed by sometimes expected, sometimes unexpected price check. Investors always need to keep this in mind and then choose to either sell call options or buy put options. In the end, it depends on personal choice and preferences. 

Profit From Falling Stocks Put Into Perspective

In the current financial scenario, the bear market seems to be always around the corner. The precise meaning of the term is simple- it is a type of negative market trend, which is characterised by a general decline in the share market for successive trading days. During this phase, the investors’ willingness to pump in finances in the stock market declines and is, in effect, replaced by widespread and self-sustaining fear of losing profit/ investments and pessimism. In order to guard themselves from such a situation, smart investors need to follow the above-mentioned strategies to make profit from falling stocks.