When Life Gives You Lemons… Turn It Into $2,620! (Part Two)

A downward trend in a stock doesn’t have to be the “wrong” direction for you.

That’s because you can make some serious cash on those drops!

And you can do it in a hurry, too.

I told you about the wonders of short selling yesterday, and how you could’ve profited a quick 67% using this technique during the time Macy’s shares fell from $25 to $15.

But there’s a much better way to collect gains than short selling.

In fact, within that same Macy’s timeframe, I have a technique that could’ve pocketed you a $2,460 profit while only investing $160!

It’s a low risk, high reward play that not many investors know about.

And today I’m spilling the details…

Options that “Put” Money in Your Pocket

The low risk, high reward play that I’m referring to are put options, which allow you to make money when stocks fall.

Put options are basically your right to sell a stock at a certain price.

Let’s go back to the Macy’s example. You think its price will go down, but instead of short selling it like we talked about yesterday, you buy a put option.

This contract gives you the right to sell 100 shares of Macy’s at a certain price — known as the strike price — regardless of the current market value.

All you have to do to lock in this right is pay a small fee, known as a premium.

So let’s say in July, when Macy’s was trading for around $22, you thought it would fall even more and therefore bought the $15 put option contracts expiring on September 20th.

This means you believed Macy’s stock would fall below $15 minus the premium you paid (in this case it was just $0.08 per share, so $14.92) before the September 20 deadline.

If the stock closes above that price that day, you’ll lose your premium of $8 (which is $0.08 per share times 100 shares that each contract includes)…

If the stock closes exactly at $14.92 that day, you’ll get your money back…

But if the stock closes lower than $14.92, you’ll be in store for BIG profits.

Now let’s fast forward one month to August. Shares of Macy’s are now down below $15.

And since the stock has fallen so much, you decide to take your gains and sell your option contracts.

Those very same contracts that you bought for $0.08 are now going for a whopping $1.31!

That’s a 1,537% gain in just one month! While only risking $8!

If you bought 20 of these contracts for $160 total (a reasonable bet that I’m sure you could swing), you could’ve sold those contracts for $2,620!

That’s why put options are a much better way to go than short selling…

You can make higher profits while investing much less.

It’s the best way to bank profits while stocks fall.

Why sit on the sidelines or sweat it out while stocks in your portfolio are headed downward?

Leveraging put options gives you the opportunity to make some serious gains during those downtrends — turning lemons into $$$$$.

Got any questions regarding put options?

I’m sure you do. This certainly isn’t an easy subject.

Whatever you’ve got, I’d love to hear it! Please send your questions and feedback to EdgeFeedback@StPaulResearch.com and I’ll be respond in a future alert.

Yours for Weekly Profits,

Alan Knuckman

Alan Knuckman
Floor Trader, The Daily Edge

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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