I know you guys aren’t financial advisors, but the husband is doing something I don’t understand. He’s planning on buying Disney stock so that when it tanks he’ll profit. The rest of our money is in DWAC, 1000 shares. Is what he doing safe?
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No stock investing is safe, especially if you don't understand the investment.
But if you know a stock will tank, you can buy a put (an option not a stock), which is an option to sell the stock at a fixed price for a limited window of time. Or you can sell the stock short, which other commenters have already mentioned. If the stock does tank, either strategy will make profit.
Thank you. That’s what he’s doing buying puts. He’s wanting to buy puts in Disney. I’m worried that he’s throwing money away although I agree Disney is going down
The cost of the put options (sometimes called sell options) is the entirety of the risk. Buying an option is generally low cost, a small fraction of the stock's share price. If the price drop exceeds the cost of the options (+ commission) by the time the option expires, the strategy will make money.
I’m grateful to you for explaining. I’m clueless about the market. If you don’t mind, would you comment on his choice of Disney for the puts? Just would be interested in your opinion. He’s going to do what he wants, but I would be interested
Politically Disney is heading downhill. I wouldn't buy Disney, on that alone. But selling an option depends entirely on the price and the time period, which your husband will know. The investment could be really stupid or really smart depending on those variables. I'm afraid I don't care enough about the stock to be informed about it, so I can't give you an informed opinion.
Thank you. Appreciate your explanation for me and the information.
The only way to make money when a stock tanks that I am aware of is a short sale.
You have to have a margin account to sell short. I have an account but have never sold short so I am shakey on how it actually works, but from what I understand you do not buy stock first. You sell borrowed stock that is fronted to you by your brokerage, and then when the stock drops you buy the stock at a lower price to pay back the brokerage.
Edit: In my opinion short selling should be outlawed. It is a method the financial cabal uses to devalue companies that won't play by their rules.
The only way I'm aware of profiting off a failed stock is through shorting.
Put options
Put options give you the right to "sell" a stock at a specified price. When you are buying Put options, you are expecting, or want, the price of the stock to decline.
For instance, if you bought an IBM December 130 "Put option", the option (contract) gives you the right to "sell" IBM stock for a price of $130 on or before the third Friday of December.
If IBM falls below $130 before the 3rd Friday in December you have the right to sell the stock for more than its market value.
So let's say that IBM falls in price to $76. Everyone else who owns the stock has to sell it for $76, but you own a contract that says you can sell it for $130!
The most dangerous thing as an investor is unjustified confidence that any particular stock move is going to happen and to bet big on it in an attempt to get rich quick. Keep the investment low enough that if the strategy fails little is lost and your financial future is not affected. Personally, I am risk averse and steer clear of any and every popular theory in pursuit of companies which earn their way up.
To make a profit he needs to sell it before he buys it. It's called short selling. He can cover when the stock drops by buying it at the lower price.