Use Put Options to Trade Negative Moves: Analyst
These grim markets have most investors praying for capitulation. You need a strong stomach to venture against the downward market trends, especially when everyone else is fleeing to the traditional safe havens of gold, Treasurys and of course cash.
But if you're willing to take the risk, how can an ordinary investor trade on negative moves? Use put options, Ron Ianieri, chief markets strategist at the Options University tells CNBC's Asia Squawk Box.
Put options give you the right, but not the obligation, to sell a specific security by a certain time, at a specified price.
(See Ron Ianieri's full explanation of put options on the left)
"So for instance, if I want the right to sell IBM at $90 a share, I can buy the IBM $90 strike put. Now, if IBM falls to below $90, to $70 ... $60 ... $50, I’m going to still have the right to sell it to someone at $90. When IBM is trading at $40 and I have the right to sell it at $90, that gives me a value of $50," Ianieri explains.
"And if I purchase that put, obviously for less than that, then I’ve taken advantage of a drop in IBM by owning that put and exercising my right to sell that security to someone else at $90 while trading at $40," he adds.
- Long on Stupidity, Short on Common Sense