http://InvestingDad.com - The markets continue their slide, but there's a way to make money from it without shorting stocks. Learn how bear call spreads help you profit from a down trend.

Video Transcription

Hi! And thanks for coming to InvestingDad.com. This is Roger Hutchison, and today I am going to talk a little bit more about how to make money when the market goes down. And the market has been going down, unfortunately, because, as of today, actually yesterday the DOW closed between, below 10,000 points and today it's kind of bouncing around, don't know if it's going to make it up close above 10,000 anyway, but on the upside, you can make money from that even though most mutual funds will be going down. How do you do that? Well, it's called -- you do it using Options. That's one way to do it. I did it, in particular, by using what's called a Bear Call Spread, which essentially means call, exactly. Oh! This is my boy. He's going to help me out with this video. So basically, what you do is you buy two Options, you buy an Option that's just above, or you are selling Option, is just above the highest price you think a security in this case -- I actually use an ETF which is an Exchange Traded Fund that tracks the DOW. And so I expected that the DOW would not go above 10,700 -- he's helping DOW -- it would not go above 10,700 by the time the Options expire which will be on October 17th. Yes, October 17th by then week-and-half from today. So -- yes DOW. And so what I did, if I bought into the ETF, I bought it at 105, the value of this ETF is one tenth of the value of the DOW roughly. So I bought it at 105, one was that 105 and the ETF I bought into or I sold Options at the 107 price and then I offset that by buying Options at the 113 price. And so that, I did a credit spread, so I get that money to me. I don't actually get to keep it until after the Options expire on the 17th, but it's basically $2.15 of the value I put in, and so that's what I get to collect. From the way the spreads work, I'll basically be doubling my investment over the course of a couple of weeks. So that's one way how you can make money when the stock markets are going down. You just have to look for an opportunity and watch the trends and be willing to take a little bit of risk, and that's how it works out. So that's what I did. Keep an eye open for things like that and good luck!