How to Make Money in a Flat Market
Stock traders--those who buy stock and hold it for a short period of time--often profit best in volatile markets. When the stock market rises and falls frequently, it is easier to buy a stock at its low and sell at its short-term high. Sometimes part-time investors, attempting to profit on volatility, find themselves unwilling to sell a stock for a loss due to the market trading close to flat. Without volatility, some positions cannot profit. There are ways to profit in a flat market.
Other People Are Reading
Instructions
-
How to Profit in a Flat Market
-
1
Find a company with a strong performance record. Sometimes a company's stock doesn't reflect the strength of the company. You should always buy stock in quality companies. This virtually eliminates the chances that the value of a company's stock will drop to zero, causing you to lose all your money.
-
2
Buy stocks with a dividend. Once you have made your list of quality companies whose stocks interest you, research their dividends. A dividend is like interest on a savings account. The company will pay you to hold on to its stock. Dividends are often higher than savings accounts, so a dividend can represent a sizable quarterly income regardless of stock market conditions.
-
-
3
Purchase the stock. If the market is flat, you will probably purchase the stock at a price you like. Be disciplined. Don't buy it unless the price is at the level you believe is at or below the true value of the company. In long periods of a flat or sideways market, you want the holding of the stock to be worth your while.
-
4
Sell covered calls against it. If you bought at least 100 shares, you can sell a covered call contract against your 100 shares. A covered call is an options strategy in which you give somebody else the right to purchase your shares at a predetermined price, should the price reach the predetermined level. In exchange, the buyer pays you a premium for the right to purchase the shares. If the price fails to reach that predetermined level, you keep the premium. Sometimes the premium reaches $100 or more each month.
-
1
Tips & Warnings
Combine all of these steps to profit in three different ways: Any rise in stock price, the dividend, and the covered call premium. In a flat market, this can represent a sizable return with very little work.
Selling covered calls is not difficult but it takes research to fully understand the strategy. Don't try this until you have virtually traded options.
References
Resources
- Photo Credit nyse during chrismas image by RRS from Fotolia.com
