How To Invest In Declining Stocks

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While the market has seen an impressive performance over the past several years, times are changing. The bottom line is that for the past few months, we’ve seen more declines than gains; which is really starting to become concerning to investors. As a financial professional, my friends tend to ask me questions quite a bit with regard to their investment choices. Lately, one of the most common of these questions is “How do I make money through investing while stocks are declining?” While there are a few investment vehicles that can make this possible, my general answer is by trading binary options. Today, we’ll talk about what binary options are, how trading stocks with binary options can be profitable in down markets, and key terms to keep in mind when you get started.

 

What Are Binary Options

Binary options are a very unique investment vehicle. That’s because when you make the decision to invest in binary options, you’re not actually purchasing any financial assets. Instead, binary options are based on up or down predictions. Essentially, it’s the goal of the binary options trader to correctly predict whether the value of a financial asset is going to rise or fall over a predetermined period of time. If the predictions are correct, traders have the ability to earn 80% or more on their trades. However, if the predictions are incorrect, traders will lose the amount invested in the particular asset.

 

Why Binary Options Are Great For Down Markets

When markets are declining, the last thing you want to do is invest in stocks. The reality is that while it is possible to short stocks, the possibility of earning a decent profit trading stocks in a down market is slim to none. However, as mentioned above, when trading binary options, traders are simply making a prediction with regard to whether the value of a stock is likely to rise or fall. Regardless of the direction the stock moves, up or down, if these predictions are correct, the trader can earn incredible gains. Therefore, regardless of whether the market is climbing or spiraling down, binary options traders have the ability to come out ahead.

 

Key Terms To Keep In Mind When Trading Binary Options

Call – A call option is a prediction that the value of the underlying asset is likely to move up. To remember which direction call options are designed for, it’s a good idea to keep the term “call them up” in mind.

Put – A put option is a prediction that the value of the underlying asset is likely to fall. Therefore, this is the best option to trade during down markets. A good way to remember that put is the down direction is to remember the term “put that down”.

Expiry Period – Expiry periods are the predetermined period of time before an option expires and predictions must come to fruition. In the world of binary options, expiry periods can range from one minute to months. Keep in mind that longer expiry periods generally come with less risk. The reason is simple. If I was to predict that rain was coming by the end of the day, there’s not much time for that prediction to come true. However, if I was to predict that rain would fall over the next month, I have a better chance of being correct.

Strike Price – The strike price is the price which the asset must reach for the option to be profitable. Strike prices are determined before purchasing the option. The further the strike price is from the current price, the higher the earnings on the option are likely to be. However, the closer the strike price to the current price, the lower the risk associated with the option.

 

Final Thoughts

Binary options can be an incredibly effective way to make money in down markets. By their very nature, they create profitable opportunities no matter which way the market is headed. So, if you’re looking for a way to make your money work for you throughout the correction we’re experiencing, you may want to consider giving them a shot.

6 thoughts on “How To Invest In Declining Stocks

    • Hi AA,

      Ha! Holding my nose and waiting to exhale! It’s cool, I have the patience. As long as those dividends are getting paid out I’m happy and will continue to buy at better price, value and yield. Thank you for stopping by and commenting.

    • Hi DC,

      I have never done anything with options but am interested in some “conservative” strategies such as covered calls or writing puts for stocks I don’t mind picking up if assigned. I’m sure I’ll venture into that world one day. For now the focus is exclusively on dividends and passive income generation. Thank you for commenting.

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