Make a Fortune Picking Loosers

Alicia Badilla By Alicia Badilla, 4th Oct 2011 | Follow this author | RSS Feed | Short URL http://nut.bz/1.l3_asf/
Posted in Wikinut>Business>Investment

How to make money shorting stocks that are expected to plunge.

Amazon's Poor Customer Service Create a Paradise for Short Sellers

What goes up must come down..... Even a DEAD CAT will bounce. We have all heard the old adages. At times it's easy to pick a stock with potential to skyrocket in value and every once in a while it becomes obvious what could crash and burn.

How to short a potential diving stock.

Here are some keys to short selling.

Get Positioned ahead of the crowd. To make money in derivatives you have to be anticipatory in nature. You want to be weeks early rather than 5 minutes late. It is like a damn breaking, once that water starts to gush out its already too late.

Know your trading partner. There are many firms in the US and abroad who can take your bet on a falling stock and few who can do it with very deep pockets. Put Option Contracts are the most popular route and here are a few companies who will pay your bet on time and in full in the event of a win:

ETrade
CIBC
TDAmeritrade

Know when to say when. Do your research and know how far a stock could drop so that you have a clear exit strategy. Leg out in increments and be happy when you hit your targets regardless of how close to the bottom you get out. Hind site is always 20/20 so don't beat yourself up when you make 50% when you could have made 1000%. Your first objective is not to loose money. Try to leg out enough profitable positions to reach the break-even point for your initial outlay. At this point your "profits riding" will allow you to swing for the fences. It isn't as scary when your working with profits and striking out doesn't hurt as bad.

Cram for the trade as if it were a test. Knowledge is power and the more you know about the potential sell off the more money you can make. Time value, contract month, premium cost, implied volatility, expiration dates....ect, you will have more questions than answers. Study.

Greed or... Not to greed is the question. Don't bet money you can't afford to loose. If you still have 30 years to work then maybe you can put in 20% of your portfolio into high risk and if you loose it you still have time to make it back by retirement.

Be Prepared If you want to get involved in November get your account opened at the beginning of October, make some practice trades. Spend at least 10 hours becoming familiar with the trading software and execution. Or be like me and just hire a professional to do it right the first time.

You pay for what you get. Cheers

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