Stocks Don't Fall, the Fed Needs to  Force Them. That was a red line that  

immature investors should have taken seriously,  but people made so much money with meme stocks  

that it seemed like they would never fall. When  everything is rising, making money is easy!  

Whatever you buy is going to be the right bet.  You will make money no matter what stock you buy.

Of course, it's great, but it's very dangerous  

in the long run. You will start thinking  that reading financial statements and  

analyzing their long strategy isn't  important when deciding which stock to buy.  

Here you go! You made money without even having  a clue on how to analyze financial statements!

Your confidence wouldn't be based on  solid grounds but is going to be flawed.  

That's why most meme stock investors  lost fortunes when everything crashed  

the moment the fed raised rates by half  a percentage point on the 4th of May. 

Once these meme traders see their portfolios  down by over 50 percent, they will most likely  

move to something else and stop trading  or investing until the next boom. The only  

problem is that the next boom doesn't  seem to be around the corner. 

Inflation has gone out of control to the  extent that it's now the fed's top priority.  

Experts at The Economist Intelligence  Unit expect the Fed to raise rates  

seven times in 2022, reaching 2.9% in early 2023.

On top of that, the fed plans to dramatically  shrink its 9 trillion dollar asset portfolio  

that it acquired during the pandemic. Beginning  of June, the fed intends to shrink the balance  

sheet at a maximum monthly pace of $60  billion in Treasuries and $35 billion  

in mortgage-backed securities after an  initial few months at a slower pace. 

This might not sound like a big deal,  

but it was one of the main reasons  why the market reacted so harshly. 

One of the primary ways the fed injects  money into the economy is by buying bonds.  

When bonds mature, the fed often replaces  them or uses the interest from these bonds  

to purchase more bonds. But now  it's just not going to renew them,  

which means no more cheap money in the economy.  Of course, it ain't going to happen overnight but  

gradually in order not to cause any immediate  economic crashes, but it already did since  

that sent a clear message to investors  that the age of cheap money has ended.

That's why stocks and crypto crashed to  rock bottom, but that raises the question:  

how to profit from a crash? Is there a way  to earn money when the market is crashing?

We will answer all of these questions  and many more but before we do that,  

give this video a thumbs up, and here is  a little disclaimer: this is not financial  

advice and everything thats said in this video  is for educational and entertainment purposes.

When we talk about a crash, it's usually  a negative thing. Emotions get in the way,  

and you start selling your positions that are  falling faster than a crashing plane. It gets  

even worse when these investments  represent your entire savings.  

Just go back to the case of GameStop  when people got ever excited and threw  

everything they had into that opportunity.  Unfortunately, things went south. People  

panicked and sold their stocks at negative 80  percent after the hedge fund's manipulation. 

If they had been a little more patient, they  wouldn't have lost as much as they did. Of course,  

it's easy to say how things should have been after  everything has already happened. But the reality  

is that that's the nature of the market.  We can go back and say the exact  

same thing about the 2020 crash.  The moral of the story, not letting emotions  

get in the way of your investing decisions is  the best thing you can do to your investments. 

Each time the market overreacted  and fell dramatically, it recovered  

shortly afterward. Those investors who  panicked and sold out found themselves  

regretting their decision, while  patient investors were rewarded. 

After the Japanese attack on Pearl Harbor,  the S&P 500 index fell more than 4%  

and continued to drop another 14% over the next  few months. However, After that, and through  

the end of the war in 1945, the stock market  returned more than 25% per year on average.  

The moral of the story is - when everyone is  panicking and selling, that's the time to buy.  

Once everyone calms down and realizes  that life goes on, no matter what happens,  

people will start investing again, which will  bring back the market to its pre-crash level.

Another way investors or traders, to  be more accurate, monetize a crash  

is through put or call options. 

Let's go back to April 2022. The markets  were doing not bad. The only problem was that  

most people were unsure if the  fed would raise rates in May  

and, most importantly, how  the market would react.  

If you were a hundred percent confident, you could  have shorted the market, but if you are not, you  

have an option. A put option. An option to sell  the stock at a specific price for a small fee. 

Let's say stock A cost $100, and you think that if  the fed raises rates, it could fall by over %50.  

You buy a put option that costs 5 dollars to sell  stock A for 100 dollars that expire in a month.  

You have 30 days to exercise the  option. If the stock doesn't crash,  

maximum that you can lose is  the 5 dollars you put up. 

However, if the market crashes after the fed  raises rates and stock A drops by 50 percent as  

you predicted to 50 dollars. You can buy  the stock for 50 dollars and sell it for  

100 dollars since you have purchased the right  to do so. And boom, you just earned 50 dollars.  

After deducting the cost of your put options which  was 5 dollars, you are left with a profit of $45. 

That's one of the main ways how traders earn  fortunes during crashes and minimize their risk.

But let's say the market has crashed, and you  don't know whether it will recover or not, so  

you don't want to risk your money buying stocks.  Is there a way to still profit out of this crash?

Of course.

That's why we have call options. A call  option works exactly like a put option,  

but in this case, you have the right  to buy the stock at a specific price. 

Let's say company B has crashed from 80 dollars  to 50 dollars, but you think that it's a temporary  

crash and the company has all the basis to  return back to 80 dollars, but you are not sure! 

We might face a recession, and the  stock might keep declining. So instead,  

you buy a call option, a right to buy the  stock at 50 dollars for, let's say, 5 dollars.  

2 weeks later, the stock bounces back to  80 dollars. You exercise your right to buy  

the stock at 50 dollars and then sell  it in an open market for 80 dollars.  

After deducting the cost of the call option  ($5), you made 25 dollars on this deal.

So when there is a market crash, not everyone  suffers. Some people thrive during crashes.  

And some people are even willing to take  an infinite risk by shorting the market.  

That's why we have news such as  this - Tesla short-sellers have made  

$8.2 billion betting against Elon Musk's  company this year as tech stocks crashed.

Instead of buying put options, you can borrow  the stock from your broker and sell it in the  

open market for, let's say, 1k dollars and then  buy it back once the price drops to let's say,  

700 dollars and return it back to your  broker, pocketing the 300 dollar difference.  

The only downside to this  strategy is that, theoretically,  

the stock price can rise infinitely, so  theoretically, your losses can be infinite.  

That's exactly what went wrong with  hedge funds that shorted Gamestop.

Good for them that they somehow  survived the catastrophe,  

but it could have gotten much worse, bankrupting  entire hedge funds. But as the latest news shows  

that traders haven't stopped shorting. In  fact, even prominent names such as Bill Gates  

are using this strategy. Gates was even lately  criticized for trying to tackle climate change  

but at the same time shorting Tesla, that's  trying to make electric cars more affordable.