Sponsored By:

Make Money on Falling Stocks

By Ken Trester

There is no hiding the obvious: The Fed's actions are a huge deal in the eyes of Wall Street, as lower interest rates are seen as good for stocks. After the Fed released its minutes on Feb. 20 showing its apparent commitment to further interest rate cuts, the market came off early losses to finish up for the day. Yet stocks tumbled down for the majority of the following two days before rallying late on Friday, Feb 22.

It's amazing how Fed minutes -- a document that we already have a general idea of what it contains -- can impact the market, good or bad.

As options players we have the distinct advantage of playing either side of the market. That's why options trading is one of the greatest games on earth -- you can be the investor, betting on the action of stocks, or you can be the "house" (i.e., the bank), taking the bets instead of making them.

You pick the role and have the fun (and profits!). With options, gains of more than 1,000% are not unusual, and you can design strategies that will win up to 90% of the time.

Considering that the markets will go up nearly as often as they go down, ensuring that your strategy allows you to profit 90% of the time means incorporating put options, which let you capitalize on downside movement in a particular stock, sector or the overall market.

'Put' Your Money Where Your Faith Isn't

Because the markets are so challenging to predict, let's zero in on a more-manageable trading approach: determining whether a specific company's stock will go up or down. In particular, when would we want to establish a bearish bet on a company? Here are some of the signs to look for:

* A lackluster product line -- In the fast-moving tech world, for instance, if a company's competitors are infiltrating the market with newer, better, faster and sleeker items, the brand may fade from customers' radar.

* Lack of potential success -- You may notice that the FDA gives "fast-track" status to certain drugs in development and assists the manufacturers in meeting its guidelines for bringing a drug to market. Other companies are making drugs that are considered high-risk and whose data seems to indicate that the therapies might hurt more patients than they help. Also, take note of the companies that the FDA requires more information from, thus delaying the drugs from coming before an FDA advisory panel for review, let alone approval.

* Poor management -- If you read news articles and press releases and get the perception that a company is poorly run because of high turnover in the top brass or due to a series of bad decisions, these aren't necessarily problems that can be fixed in a short amount of time.

There are many other signs that a company's stock is set to hit the skids, but once you do identify a potential loser, you have a unique advantage as an options trader because you can buy put options as a bet that a series of unfortunate events will result in a stock taking a tumble. And that's a move that can bring you big profits!

---

In his Fast Options Profits service, Ken provides two options trades per week, complete with Buy Under, Target and Sell Stop prices. Click here to try out Fast Options Profits risk-free and see what he's recommending next!

---