How to make money by investing in volatile stocks

How to make money by investing in volatile stocks

Since a few years, people have been investing in stocks and it has mostly been a smart decision. Stocks, as an asset, can be very volatile. Most volatile stocks are capable of making you a great deal of money. The volatility of stocks is an inevitable truth in the stock market. Owners, traders and investors must be armed with ways to get out of certain circumstances and strategies to deal with situations of loss and how to make a profit even in those times.

There are a lot of ways of earning during volatile scenarios using options strategies. Strategies involving the selling either at the money or Out of The Money (OTM) or At The Money (ATM) options with an expectation that the trajectory of the market will not change much. It also takes into consideration the options premiums, and whether they will depreciate consequentially or just die, which will, in turn, create profits. Investors will be tempted to sell the most volatile stocks in situations of losses in the stock market. Selling options in volatile scenarios can be very tempting but it is extremely important to be hedged, otherwise, the disadvantages will be quite high if you are wrong. 4 legged options strategies such as Iron Condor and Iron butterfly give you the perfect hedge. Entering the strategies across different stocks with minor interrelation is a good idea to lower the chances of failure. Executing covered call strategy successfully over a period of time helps generate extra returns on stock. Some popular strategies include short straddles, short strangles, iron condor, covered call etc.

When the market is not dedicated to a single direction and it can go both ways, it is not advisable to invest solely in long trades. It is better to have a moderate percentage of your stocks in short trades. While investing in short stock, one must make sure to know the range of stocks because entering the trades without the knowledge of the prices can ruin the potential to make an optimum profit. It must be noted that one must choose the weakest stocks from the weakest sectors while shorting. If you are not very familiar with these concepts, a certain portion of your long stock investments and place it in a completely unrelated asset is a good move.

Contrary to popular belief, you can average your positions during volatile markets and they can prove very beneficial. You can buy equity every time the corrects between a particular range. You can sell your current stocks at high and purchase them at a much lower rate which is good for your portfolio.

While averaging is good, averaging with leverage can prove to be disastrous. Leverages transform the equation because they reduce the margin of error to a great extent and the waiting power is extremely limited. The odds are therefore stacked against a trader who averages against leverages. Timing the market requires experience and skill and if you are not confident about it, you should not step into investing volatile stocks.

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