10 Ways to Maximize Gains When Investing on a High Level
Maximizing gains is every investor’s goal. Who doesn’t want to get the most from their stock investing pursuits? These ten strategies are meant to maximize stock (unrealized) gains you either currently have or can take advantage of. Some methods lock in profits, and others are aggressive moves that could produce mind-boggling gains — if you’re correct.
Considering how twitchy investors have become in recent years, patience is the one way to maximize gain that requires the least amount of activity, but it just may be the most difficult to pull off.
Purchasing quality stocks for the long haul is like buying a tree. Trees are consistent growers, but you can keep staring and not see the growth. The greatest investors are very patient, and the payoff is huge — not immediately but in due course.
Patience is also important when the market is against you. If the stock is paying a dividend, your patience will get you paid. It’s always good to be paid while you’re waiting!
Accumulate more holdings
Buy more . . . why not? If you have 100 shares and the company is doing well, then why not get another 100 shares? As the market starts to notice what you have, the stock price will appreciate.
Accumulate your stock holdings while minimizing your costs by taking advantage of what may be available to you. For example, many companies have a dividend reinvestment plan (DRP), which is excellent for long-term investors.
A DRP is best suited for long-term accumulating of your chosen stock. You can’t easily jump in and jump out, and you can’t use stop-loss orders.
Try trailing stops
A trailing stop is an order you can put in on a stock or exchange-traded fund (ETF) that acts like a stop-loss order in that it can limit the downside without limiting the upside. An added twist is that while a stop-loss order stays put at a specific level, a trailing stop keeps moving upward with the security but stays put when the security starts to go down. The time frame for the order would actually be 30, 60, 90, or 120 days (depending on the broker), but that way you don’t agonize about selling the stock, and you could squeeze more gain from the stock.
Use stock triggers
Consider doing a trade trigger (or combination trade), which is an order set up so that if the order is triggered, then another brokerage order is enacted automatically.
Either at the broker’s website or on the phone with the broker’s customer order desk, you can put in an order such as a GTC sell-limit order. Then when the sale order is triggered (when the stock hits the limit price or better), that would automatically sell your stock and then initiate a new order. In this case, you can buy a put option on the same security so that you can make a subsequent profit when the stock does fall according to your expectations. (A put option is a bet that the underlying stock will go down; it would help you profit on that type of move.)
In this way, you’d have a gain when the stock went up and then a second gain on the put when the stock went down.
Make the most of margin
Using margin in your account — when done right — can help you make a lot of money. Margin (or stock margin) is simply the use of debt (borrowing money from your broker in your brokerage account) to buy more stock or other securities in your account. This process is also referred to as “using leverage” because you’re using borrowed funds to increase your stock position.
If you’re right and the stock goes up, you gain handsomely. However, if the stock goes down, your stock position’s value is reduced, but you still have the margin debt. In the event that your stock goes down, you may need to pay down the margin debt or find other assets to add to your account to achieve enough coverage for the outstanding margin debt (this is also referred to as margin maintenance requirements).
Look at leveraged ETFs
To do some real “go, go!” speculating, leveraged exchange-traded funds (ETFs) are the way to go. A leveraged ETF has some of the firepower of options but without the ultimate drawback of buying options. Call and put options can expire worthless. However, leveraged ETFs don’t have an expiration feature to them.
The leverage is usually quoted as “double” the move of the underlying stock or group of stocks. Some leveraged ETFs try to triple the move of the underlying security.
Survey optionable securities
The essence of stock investing is, of course, investing directly in stocks, and this should be the foundation of a growth-oriented financial portfolio. But the stocks and ETFs to consider in that foundation should be optionable.
Optionable simply means that these stocks have options tied to them. Many stocks have literally hundreds of different options (both calls and puts) attached to them. This means that great flexibility and power come with options. This gives you, the stock investor, more ways to squeeze more potential gains (or more ways to minimize risk) in your stock investing and speculative strategies.
Buy call options
There are few better ways to turbocharge your potential for gains than options. Bullish stock investors seeking to maximize gains while minimizing cash outlay (or risk potential) should consider buying call options.
The call option is a contract that gives the buyer the right (but not the obligation) to buy a specific stock (or other asset) at a specified price during the life of the option contract. Options have a finite life and can expire, so take the time to learn the pros and cons. A call option offers the potential for unlimited gains and (if you’re right, of course) triple or even quadruple percentage gains, while the most you can lose is 100 percent of a relatively small sum of money.
Sell put options
Selling put options is a good way to make some cash on a stock you may want (or are certainly bullish on). When a stock is down, the puts on it have gained value. What better time to sell a put?
Selling a put option (also called writing a put option) is a strategy that gives you the opportunity to generate some income, but in exchange, there is an obligation to buy the underlying stock or asset at a given price at some time during the life of the put option.
Construct a synthetic long
A synthetic long is a bullish option combination you can use when an undervalued stock or asset whose price is down (temporarily) and you want to speculate on the price rebounding. The synthetic long is a combination of simultaneously writing a put option and buying a call option on the same stock or asset.
A synthetic long is a combination of a call option you’re buying coupled with a put option you’re writing; both are done on the same stock.
For the synthetic long, make sure you’re okay (both mentally and financially) with buying the stock at the strike price indicated in the put you’re writing in case the stock falls. Timing is very important for placing this combination trade to minimize the potential risk. Secondly, make sure you do your homework regarding the stock’s future potential. What good is buying a stock at a lower price if the stock itself continues to fall even lower later on?