Most people think that only way they can make money is to buy low and sell high. They think that there is money to be made if the market is rising.
For starters, there is as much money in rising market as in the falling market. In the bearish scenario play the game in reverse. Sell high to buy low.
The long-term investors who play in cash segment can not benefit from the falling market. Rightly so, they keep a long-term view of the market and short-term swings do not bother them and they are very happy waiting it out.
“What is wrong to make some money on the side to take benefit of the falling market”, is my view.
Why do markets fall? The reasons are company performance, economic outlook of the country and global clues. How do they fall? Long term investors don’t sell and most of the stock is owned by long term guys. So how does the stock fall.
Stock market has a tool known as shorting where you could borrow stock to sell. It can happen only in F & O and intraday segments. Let us review one F & O bearish strategy.
NIFTY currently is at 7800. You short NIFTY and at the same time hedge your position by buying 7800 call for ₹ 145. To finance this call sell 8000 call for ₹ 60 and 7550 put for ₹80. Market falls and as you had expected and you gain (7800 – current price). Market rises against your expectations. It doesn’t matter as you have hedged your short position by buying a call.
We have seen how easy it is to make money without risking your capital. You might be wondering, what is the catch here. Well, there are two of them. Could you identify?