Alternatives To Old Fashioned Buy And Hold Stock Investing
If you find the classic, conservative method of buy-and-hold stock investing too boring and passive, then you should investigate a more active investing approach. You can speculate on the market in a variety of ways that allow you to actively manage daily positions, or weekly positions. This brings more variety and excitement to your investing behavior. Below are two alternatives to regular investing to consider. Each has its own benefits and drawbacks, which will be discussed.
Option investing is a method of investing in stocks without purchasing them. Instead of buying shares in a company, you purchase an option to buy them or sell them. The option to buy a stock is called a 'call.' The option to sell a stock is a 'put.'
You never have to actually buy or sell the stock, you can just sell the option to other investors. For instance, suppose you think company X is overvalued and the stock price will decrease. What you would do is purchase a put. If the stock is currently trading at $100 dollars, you could purchase a put that would allow you to sell this stock for $100. When the price of the stock begins to drop, the value of your option goes up because it entitles the holder to sell the stock for more than it's currently trading at.
The benefit to options trading is that it requires much less money than regular stock investing. Options sell for a fraction of the value of the stock they represent. The downside is that they are very volatile. This can be good, but it can also create huge swings in your investing bankroll.
If you like the idea of speculating on particular companies, but want a fast-paced, engaging method, then options trading is a clear winner.
Emini Futures Trading
On the other hand, if you're not interested in monitoring individual stocks, and prefer to play the entire market, then trading emini futures are the way to go. They are called emini because they are smaller versions of the big futures contracts. The most popular emini future to trade is the one that corresponds to the S&P 500. You can either short or go long. If you short, you are hoping that the market falls. If you go long, you anticipate a rise in the market.
The main drawback to trading emini contracts is that it requires active attention. Unlike passive stock investing, you need to stay on top of the emini movement because trades take place within the confines of a day. Sometimes you might enter and exit a trade within minutes. However, since this article is geared towards people looking for an exciting alternative to buy-and-hold stocks, this shouldn't be an issue.
There are several advantages to trading the emini futures. First, they are traded virtually 24 hours a day. This is great for people who don't have the time to schedule daytime trading when the NYSE and NASDAQ are open.
A second benefit is that you don't have to do deep analysis on particular companies. If you prefer to operate off of major news events that effect the entire market, or are someone who likes to use technical analysis, then eminis are perfect. Many traders use charts to time their entry points. Charts can be found online through many different trading resources. If you're someone who likes looking for patterns, but hates crunching numbers or poring over a company's balance sheets, then emini chart analysis is perfect.