Making money fast in the stock market is often risky and there are no guarantees. Financial advisors suggest that investment gains require a long-term horizon. Investing on short-term usually incurs losses, but it can also give you a chance to realize fast profits if you find ways to capitalize on stock market opportunities
The following are great ways to make money in the stock market.
Stock options
Stock options are a great investment tool for quick profits. By investing in stock options you acquire the right to buy (call option) or sell (put option) an underlying asset at a certain price by its maturity date. You have the right to exercise, but if you don’t, the option simply expires. Due their mechanisms, stock options allow a high growth potential, but they also incur a high risk.
To better understand how stock options work, we assume that you buy a call option of company X at a strike price of $18. Maturity date is on August, while the price for an option to buy one share is $1. To acquire 100 shares of this company, you have to pay $100 to the exchange.
There are two possible scenarios after you acquire the stock options:
a) The price of company X does not rise above $18 before August, so you choose not to exercise your option and you lose $100.
b) The price of company X rises to $30 before August, so you choose to buy 100 shares of company X at $18 and realize a profit of (100 x $30) – (100 x $19) = $1,100.
So, the factor that determines if you will exercise your call option is if the share price will rise before maturity date.
Stock options are flexible financial derivative instruments that give you control over investing and allow you to leverage your money due to their low cost. By investing in stock options you can hedge against market fluctuations and gain profits from both bear and bull markets.
Penny stocks
Penny stocks are under $5 common stocks that trade on the over the counter markets (OTC) through the OTCBB and pink sheets. Typically, penny stocks are characterized by low market capitalization (less than $50 million), but they are highly risky because they incur large bid-ask spreads. It is not unusual to see a drop of 20 percent to 40 percent during a trading day for a penny stock and a correction to their original price at the end of the trading. In addition, penny stocks are highly illiquid because the amount of penny stocks that trade in the OTC is significantly less than the amount of shares of the listed companies that trade in the major stock exchanges. This makes it really hard to sell or short them as there are not many buyers interested in buying them. Finally, penny stocks are highly speculative as they lack regulatory listing requirements and do not require filling financial statements with the SEC.
On the other hand, because penny stocks are highly speculative and highly risky, they serve as a great means to make money fast. They are great tools for fast, short term-returns, provided you select the right penny stocks that can provide you with higher returns than the risk you undertake for your investment.
IPOs
Privately held firms consider an initial public offering (IPO) to raise additional capital, increase their liquidity, facilitate a merger or acquisition, improve their valuation and gain credibility. Successful IPOs can create new business opportunities and allow to public companies to seek growth in niche markets.
IPOs are profitable because they provide you a great opportunity to invest in companies with high growth potential and solid market position at a relatively low price. Typically, new companies offer their shares to the public through IPOs at par value and their price rises as soon as they get listed on the stock exchange. Companies that are already listed offer new shares even 30 percent lower than the market price of their existing shares. So, in both cases, you make quick money through IPOs. In addition, when applying for an IPO, you are investing in a company with a competent senior management team, familiar with IPO listing and committed to meet the requirements of securities commissions. You are also investing in a company with the ability to manage the challenges of going public and sustain its competitive advantage and brand image, while capitalizing at a thriving market prospect. All these characteristics show company’s readiness to go public and you are taking your share on this great prospect. The only thing to consider carefully is making sure that you get a firm allotment if the IPO is oversubscribed.
In conclusion, although it is risky, you can make money fast in the stock market provided you look at the big picture and capitalize on great market opportunities at the right time. After all, investing is all about opportunity and timing.