--%>
Assignment Help - homework help

Is this possible to make money in the stock market

Is this possible to make money in the stock market while the quotations are going down? And what is credit sale?

E

Expert

Verified

Three easy moves are here to make money while prices are going down: futures sale, purchase of put options and credit sale. Credit sale of a share means borrowing this and sell this afterwards. For case in point, we sell the share today at a specific price as €10 but we owe a share to the institution that lent this to us. If the quotation of the share goes down to 8 Euros the following week, we buy the share and provide it back to the institution which borrowed it to us and cancel out our position. In such case, we will have earned 2 Euros (the 10 Euros we earned by the sale of the share minus the 8 Euros we paid to buy this).

Meanwhile, obviously, we will owe a share to the institution that lent this to us and they will ask for several guarantees to cover the debt. Futures sale is very the same to credit sale but with the advantage which, normally, the guarantees demanded are lower. For illustration, an investor who sold a futures contract on the IBEX 35 at Friday 18th of January, while this was at 13,900 points, and closed his position with buying a futures contract the same to the one he sold on Monday 21st, when this was at 12,700, would have earned 12,000 Euros. The computation is a lot easier: 10 Euros for a point. The price fell through 1,200 points and, thus, the investor gained 12,000. But when the IBEX 36 had gone up, the investor would have lost 10 Euros for all points.

   Related Questions in Corporate Finance

  • Q : Difference between capitalization and

    Is the difference for the value creation in a company among the market value of the shares (capitalization) and their book value a good measure since its foundation?

    		•
  • Q : Does value of the company increase when

    According to the valuation method depends on tax shields, the value of the company (Vl) is the value of the unleveraged company (Vu) in addition with the value of tax shields (VTS), thus, the higher the interest and the higher the VTS. Therefore, does

    		•
  • Q : Is book value the excellent proxy to

    Is book value the excellent proxy to the value of the shares?

    		•
  • Q : Could we explain that the shares’ value

    Could we explain that the shares’ value is intangible?

    		•
  • Q : Calculate their after tax cost of debt

    Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of whichrequire semiannual interest payments. Bond A has a coupon rate of 4.0%; a price qu

    		•
  • Q : What is Box Spread Box Spread: This is

    Box Spread: This is another strategy which seeks to exploit the arbitrage opportunities which are available in the market. In case that the options are correctly priced, this strategy would earn only the risk free rate. However, due to existence of im

    		•
  • Q : Types of Corporate Bonds What are the

    What are the various types of Corporate Bonds?

    		•
  • Q : Illustrates cost of its equity is zero

    Is this true that the cost of its equity is zero, if a company does not distribute dividends?

    		•
  • Q : Explain Corporate Development Corporate

    Corporate Development: Corporate development is a term which references the range of planning options and strategies which can assist to move a company toward its targets. The procedure of this kind of strategic development can be exerted to just abou

    		•
  • Q : Financial statements The concept of

    The concept of conservatism has been influential in the development of accounting theory and practice.  A major effect of conservatism is that accountants tend to recognize losses but not gains.  For example, when the value of an asset is impaired, it is wri

    		•