When the Market Gives You Lemons… Turn It Into a Fortune (Part One)
If you’re anything like me, then you like to stay in shape.
And one of my favorite ways to keep my cardio up is a nice long bike ride when I find the free time on the weekends.
When riding a bike, it’s a lot harder to go uphill than it is to go downhill. I feel like I’m practically crawling uphill when I can effortlessly fly downhill.
That’s kind of like how the market works, too…
The stocks of great businesses slowly climb higher as investors realize their potential. While the stocks of unsuccessful businesses can get punished in a hurry, causing massive losses in no time at all.
But what if there was a way to actually profit when a stock goes down?
Instead of panicking when the market dips, you can sit there and relax knowing that you’re getting paid!
Now, I’m not saying you need to gear up for a recession or anything like that… the market is near its all-time highs and I believe it will continue higher.
But even in the biggest bull markets, you can always find stocks that are going in the wrong direction.
And rather than just staying away from those companies, you can make HUGE profits instead.
Hear me out…
Short and Not So Sweet
You’ve probably heard the terms “short selling” and “shorting” a stock.
You might have even read the book or seen the movie The Big Short, where Wall Street genius Michael Burry predicted and made a fortune from the housing market crash just over 10 years ago.
But like I said before, you don’t have to bet against, or short, an entire market. You can do it for individual stocks that you think will go down, even just temporarily.
Shorting a stock is when you borrow shares and immediately sell them to the open market, collecting the cash you sold them for.
In order to close your short position, you buy those same shares back. So you do this hoping to buy them back at a lower price than you sold them for, profiting the difference.
Let’s take Macy’s for example…
Macy’s was once a retail juggernaut that traded for $70 in 2015 before plummeting down to $35 that same year.
It snuck back up to $40 last year before crashing down to its current price of $15. Shares are down over 50% this year alone.
Say you saw that it was in a downward spiral and believed it would continue in that direction.
So you short the stock. You short 40 shares when it got down to $25, selling the shares for a total of 40 x $25 = $1,000.
As you predicted, the stock continued downward. When it gets down to $15, you decide to buy those shares back.
So you buy the 40 shares at $15 for a total of $600. Your profit is $1,000 – $600 = $400.
A 67% profit in the same four months that the stock fell by 40% isn’t too shabby!
That seems easy enough, but there is a downside…
Remember, you have to eventually buy those shares back… no matter how high or low the stock price gets.
So the absolute most money you could make is if the company traded down to $0 — in which you would profit the full $1,000.
But say Macy’s brought in a new CEO and the company turned things around, taking the stock up with it.
Say shares go back up to the 2015 high of $70. There’s no sign of it slowing down, so you buy the shares back to avoid even more losses in your short position.
Buying the 40 shares at $70 would be $2,800 — netting you a loss of $1,800.
So when short selling stocks, there’s actually more risk than reward.
Luckily, I have a way to avoid that risk.
A technique that has exponentially more upside and carries only a small, limited downside…
In other words, it’s low risk, high reward.
Using my technique for that Macy’s drop would’ve given you 1537.5% gains… a $2,460 profit when only being able to lose AT MOST $160!!
If you want to know my secret, stay alert for part two of this Daily Edge article. I’ll tell you everything you need to know.
Yours for Weekly Profits,
Floor Trader, The Daily Edge