Stock Trading – Trading Stock in a Bear Market
By Nathan Pennington
Here’s the thing. Many of us are uncomfortable with shorting a stock. Yes, going short is how you can really clean up in a down market, but it’s just not comfortable to us. Yet, we want to make money even when the market isn’t healthy.
What are we to do?
First up, you could trade put options. And if you’re really good at that, you can make money hand over fist.
However, for most of us, just trading options naked is the same thing as playing the lottery. You will lose money. You will get stung.
So, here’s how I recommend you trade in a down market.
1) Only trade with companies that are leaders in their industry. No taking gambles now. You need strong, big companies.
2) Only trade companies that are actually making money. Avoid companies that are losing money.
3) Only trade companies that are projected to make even more money
4) Sell calls on the stocks that you do trade.
See, when you are trading very safe companies that are doing well, and you add the downside protection of selling a call (because of the premium that you collect), you are trading safely in a bear market.
We could even take this a step further and you could buy a protective put on the stock as well. That would give you even more flexibility as your downside is more or less totally protected (except for the price of the put).
But then the premium from the calls should even that out for you.