Newbie question (might be stupid)

[IIAce]

In a given period of time, a stock price will either go up, down, or stay the same. There are ways to make money in all three cases; respectively: going long, selling short, options. My question is, is there a way you can make money if you think a stock will do better/worse than another stock?

For example, say there are two stocks: X and Y. You're sure that stock X will do better than stock Y in the next month. However, you don't know whether they will go up or down. All you know is that X will do better than Y. Can you make money off of something like that?

[joecode]

Newbie answer (might be stupid)

You're sure that it will make more money but it could still go down however I'd take the risk because if it's a reliable stock if it loses it will not lose much (typically) and if it gains you have greater chance it goes up a lot.

[gijoe9]

The only stupid Question is the one you did not ask If I understand you right you know that x will outperform y in a given period. The short answer is even if it goes up or down the way to make maney is to go with options contracts. Firstconsul and walstgolfer are the ones to comment on the technical aspects of how it works but basically by buying puts and calls or by writing puts and calls there is a way to gain money here. Try looking in the learning center under wallstgolfers post and I think he has an article that will explain it better than I ever could. The other thing to do is to read up on options basics on investopedia tutorial section. I hope that helps you out. If not keep asking
Joe

[gijoe9]

Originally Posted by joecode

Newbie answer (might be stupid)

You're sure that it will make more money but it could still go down however I'd take the risk because if it's a reliable stock if it loses it will not lose much (typically) and if it gains you have greater chance it goes up a lot.

Hey Joe no answer is stupid if you are trying to help out IMO If you post an answer that is open to debate you can expect it here If you posted something completely wrong someone would try to correct you but you WILL NOT get called stupid And another thing I have never met a Joe I didn't like
Joe

[IIAce]

Thanks for all the replies. They've been really helpful .

I have another question, but I didn't really wanna start another thread. Here it is:
Ok so say I want to short a few shares of stock X. I send the order, my broker (Scottrade) "lends" me the shares and then sells them for me and puts the money in my account. Scottrade then charges me their 9% interest or w/e on that "loaned" money until I buy back the shares to cover. Did I get all that right? Is that how shorting works?

Thanks.

[gijoe9]

Yes. They lend them to you and sell them at the market price at the time of the transaction and give you the cash minus fees etc. You get charged the interest rate for short selling untill you buy to cover then you keep or pay the difference between cover minus sell price.
Joe

[lytle]

I think the way to trade the situation you're talking about is with an option spread in which you buy a Call option on the one stock and buy a Put option on the other stock.

Trading options is a completely different game than simply trading stocks. It's rather complicated, at least at first, but I have to say that once you trade options you may not go back to stock trading. In trading options you can control a much larger position with far less money except there are some disadvantages such as a time limit, etc. It takes a while to learn the in's and out's but you can do it on a simulator. It is probably best to first get comfortable trading stocks and then look at options.

Read up on options in Investopedia and in addition to trading stocks on the Investopedia simulator you can trade options.

Good luck and make money.

Don