What types of investing are offered within your 401(k) or your IRA? Typically, your only options are bond funds, index funds, and mutual funds. While these are solid investments, they can be a bit tiring. After all, they show very little volatility and you are most likely pretty limited with your selections!
Do you know what the downside is when you invest using these typical methods? You only win when the market goes up. Think about it. You put your money into the market and what is your hope? That the stocks you chose increase in value. Did you know that it’s possible to make money when the value of a stock goes down? It sure is! Mainly, this is possible through options. Since it is initially a little bit hard to grasp, the average investor steers clear of this type of investing, but in reality, it’s not as difficult as it may initially seem.
There are some wise investors out there that are hoping the market goes up, but they also realize that it could tank at any moment as well. For this reason, they purchase a safety net for their stock. Let’s say that they bought a bunch of shares at $50. They are fairly certain that the stock will actually rise to $55 (in other words, it’s currently undervalued), but just in case it loses value, they purchase a stop option that will automatically sell their shares at a designated price. Let’s say that this price is $45.
If the stock goes down to $35, they still receive their $45 since they purchased the stop option. If, however, the stock never goes down below $45, then their purchase was made for nothing. When this happens, where did their money actually go? It goes to the “person” (which can really be anybody in the market) that accepts their stop option and is willing to pay the $45 if the stock tanks. But, if the stock never goes below $45, then these people reap the benefits without ever having to buy a stock, not to mention the fact that they benefited by it going down!
There are other options that allow investors to make money on the stock’s ultimate collapse, but this is a bit more complicated. Don’t worry, we can cover it at a later date. So, what other ways could you invest that’s a little different from the ordinary? How about future’s trading? The stock market officially opens at 9:30am, but did you know that there is trading going on well before the bell? It’s true! You can trade futures. If this interests you, perhaps you should open a futures trading account. I would advise that you start small and get a feel for this type of trading before you fully invest with this method. But, perhaps these options will spark your interest in investing!