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Mar

2022

Implied Volatility vs Historical Volatility

By Dan Miller | Growing Wealth, invest, Investing | Comments Off

Whether you are a new investor or a seasoned trader, it’s common to hear the word “volatility” when discussing the movements of a stock price or index. More volatile stocks tend to have larger swings, both up and down.

However, depending on the context, the speaker may be referring to historical volatility, as in the case of comparing two stocks, or implied volatility, as in the case of discussing options prices. It’s crucial for participants in these markets to understand the difference.

Here’s what you need to know about implied volatility vs. historical volatility.

Historical Volatility Definition

Historical volatility is a statistical measurement of how much a given stock moves up and down. As the name suggests, historical volatility measures a stock’s price as compared to its average or mean. The most popular way to calculate a stock’s historical volatility is by calculating the standard deviation of a stock’s price movements over a period of time.

Investors use historical volatility to get an idea of how likely the stock is to make large movements in its price. A stock with higher volatility is inherently riskier, because there is a bigger chance the stock’s price will drop significantly. Highly volatile investments purchased with leveraged accounts can be even riskier still.

On the other hand, it can also be potentially more rewarding, since there is also a possibility that the stock’s price will make a big jump upward. Stocks tend to generally become more volatile during times of recession or uncertainty.

Investors measure a stock’s historical volatility as a percentage of the stock’s price and not as an absolute number. That makes it easy to compare historical volatility between stocks, even if they have very different values, when assessing investment opportunities. When comparing the volatility of stocks, it’s important to make sure you’re looking at them over the same time period.

Implied Volatility Definition

Implied volatility is another measure of the volatility of a stock. While historical volatility is backward-looking, implied volatility attempts to quantify a stock’s volatility going forward. Implied volatility reflects the prices of the options contracts associated with a particular stock. Options traders usually reference implied volatility with the Greek letter σ (Sigma).

A stock with a higher implied volatility generally has options contracts with higher premiums. This is because there is more uncertainty around the direction of the underlying stock.

Historical vs Implied Volatility

While both implied volatility and historical volatility measure the volatility of a particular stock, they measure it in different ways. Historical volatility reflects the past price movements of a particular stock or index, while implied volatility gauges future expectations of price movements based on the prices of options contracts.Traders use implied volatility when they are determining the extrinsic value of an option.

When to Use Historical vs Implied Volatility

One way to use implied volatility is to look for options whose implied volatility is different from the historical volatility. If an option’s implied volatility is lower than the historical volatility of the underlying stock, that may be a signal of an undervalued option premium.

Comparing Implied and Historical Volatility

Here is a quick summary of the differences between historical and implied volatility:

Historical Volatility	Implied Volatility
Calculated using the historical prices of a stock or index	Determined indirectly based on the prices of options contracts
Used primarily for stocks or indexes	Used primarily for options
Measures past performance based on historical data	Projects future performance, representing an indicator of future volatility

How to Use Implied and Historical Volatility Together

Because implied volatility and historical volatility measure different things it can be useful to employ them both. The historical volatility of a given stock or index will measure how much the price has historically moved, both up and down. If you’re interested in investing in options for a stock, you can look at how its historical volatility compares to the implied volatility denoted by the prices of its options contracts.

One way that you can incorporate some of these ideas into your trading strategies through a volatility skew. A volatility skew depends on the difference in implied volatility between options contracts that are in the money, at the money and out of the money.

Another relevant concept when it comes to implied volatility is a volatility smile, a graphic representation of the strike prices and the implied volatility of options with the same underlying asset and expiration date.

The Takeaway

Options traders often look at both historical and implied volatility when determining their options trading strategy. You may also use these tools while investing, or you might look at other factors to evaluate potential investments.

If you’re ready to start trading options, one way to start is with SoFi’s options trading platform. This platform offers an intuitive and approachable design where you can make trades from the mobile app or web platform. Plus, you can reference a library of educational content about options if questions come up along your investing journey.

Pay low fees when you start options trading with SoFi.

FAQ

How is implied volatility calculated from historical volatility?

The historical volatility of a stock or index reflects the changes in historical stock prices. It is often, but not always, calculated as the standard deviation of a stock’s price movements. Implied volatility is not something directly calculated — instead, it is implied based on the prices of options contracts for the underlying stock.

Is there a difference between implied and realized volatility?

Realized volatility is another name for the historical volatility of a stock. So while implied and realized volatility both measure how volatile a stock is, they have different definitions, and investors use them in different ways.

Photo credit: iStock/kupicoo

Mar

2022

What Is a Golden Cross Pattern in Stocks? How Do They Form?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

The Golden Cross pattern is a popular candlestick chart pattern used by traders. It is a technical indicator that appears when a security’s short-term moving average rises above its long-term moving average.

It is popular because it is easy for chart watchers to spot and interpret. The Golden Cross doesn’t occur as often as other chart patterns, but when it does it sometimes even makes news headlines because it is a strong bullish indicator for a stock or index.

How Do Golden Cross Patterns Form?

The Golden Cross candlestick chart pattern happens when two moving averages cross, specifically when the short-term moving average rises above the long-term moving average. It is an indicator that the market will probably head in a bullish direction.

A moving average is simply a plot of the average value of a stock price for some trailing period of time. Commonly used moving averages are the 50-day moving average as a short-term measure and the 200-day moving average as a long-term measure.

Recommmended: Important Candlestick Patterns to Know

3 Stages of a Golden Cross

There are three stages that form the Golden Cross pattern:

1. The first stage of the golden cross happens before the moving average lines cross. A downtrend happens and the short-term average is lower than the long-term average, but buyers volume starts exceeding seller volume.

2. Next, the cross happens. The short-term moving average crosses over and above the long-term moving average, reflecting an upward trend.

3. Finally, the trend continues and the price continues to rise, confirming a bullish market. Both moving averages establish support levels and the short-term average remains above the long-term.

What Does a Golden Cross Tell Traders?

When the short-term average is higher than the long-term average, this means that short-term prices are rising compared to previous prices, showing bullish momentum. A sharper trend line for the Golden Cross implies a more bullish indicator.

The candlestick pattern that’s opposite the Golden Cross is the Death Cross, which is when the short-term average goes below the long-term average, indicating a bearish market trend.

Does a Golden Cross Work?

The Golden Cross can be a useful technical pattern for traders to use to spot changes in market trends. However, on its own it has some limitations.

Benefits of the Golden Cross

The Golden Cross can be a good indicator that stock prices will rise. It is known as one of the strongest bullish indicators, and can reflect other positive underlying factors in a particular stock. Furthermore, since the pattern is so widely known, it can attract buyers, thereby helping to fulfill its own prediction.

Drawbacks of the Golden Cross

Like any chart pattern, there is no guarantee that prices will rise following the golden chart pattern. The Golden Cross is a lagging indicator. It shows historical prices, which are not necessarily an indicator of future price trends. Even if prices do rise, they might not rise for long after the Golden Cross forms. Due to these uncertainties, it is best to use the Golden Cross in conjunction with other indicators.

How to Trade a Golden Cross

Both long-term and short-term traders can use the Golden Cross to help them decide when to call their broker and enter or exit trades. It can be used both for individual stocks and for trading market indexes.

Most traders use the Golden Cross and Death Cross along with other indicators and fundamental analysis, such as the relative strength index (RSI) and moving average convergence divergence (MACD). RSI and MACD are popular indicators because they are leading indicators, providing more predictive and real-time information than the Golden Cross lagging pattern.

What Time Frame is Best for Golden Cross?

The most popular moving averages to use to spot the Golden Cross are the 50-DMA and the 200-DMA. However, day traders may also spot the Golden Cross using moving averages of just a few hours or even one hour. Traders enter into the trade when the short-term average crosses over the long-term, and they exit the trade when the price reverses again.

Oftentimes, investors enter a trade when the stock price itself rises above the 200-DMA rather than waiting for the 50-DMA to cross over the 200-DMA, because the Golden Cross is a lagging indicator. If traders wait for the pattern to form they may have missed the best opportunity to enter into the market. Short sellers also use the Golden Cross to determine when the market is turning bullish, which is a good time for them to exit their short positions.

Golden Cross Pattern in Crypto

While the Golden Cross has traditionally been used as a stock and index trading indicator, some crypto traders also use it. In crypto, traders use in the same way as stock traders, generally using the 50-DMA and the 200-DMA.

However, it’s important to remember that crypto assets tend to be more volatile than stocks and other assets. Therefore, the Golden Cross may have less utility for crypto traders than stock traders, since it is a lagging indicator.

One way to make the Golden Cross more useful for crypto is to change the moving averages used. In addition to using 50-DMA and 200-DMA, a trader might look at the 10-DMA compared to the 50-DMA and 200-DMA. This provides a more recent look at the market to see if the Golden Cross is still relevant for current trades.

A trader may actually find that the crypto price is returning to a downtrend, in which case it would not be a good time to buy. Technical patterns are especially popular with crypto traders because there is little else to go on when trying to determine whether a coin is headed ‘to the moon.’ There are no company reports of earnings, debt, or other information that might be informative for traders looking to do fundamental analysis.

The Takeaway

Chart patterns are useful tools for both beginning investors and experienced traders to spot market trends and find entry and exit points for trades. The Golden Cross is one indicator that technical analysts might look at to determine whether a stock or market is bullish.

If you’re ready to start investing, a great way to get started is by opening an account on the SoFi® Invest investment app. The online stock trading app lets you research, track, buy and sell stocks, ETFs, and other assets, and all you need is a few dollars to get started.

Alongside chart patterns like, another useful tool in your investing journey is a user-friendly options trading platform. SoFi’s platform allows you to trade options from the mobile app or web platform. Plus, you can continue learning as you go, thanks to the educational resources about options offered.

Trade options with low fees through SoFi.

Photo credit: iStock/Prostock-Studio

Mar

2022

Credit Spread vs Debit Spread

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

An options spread involves buying and selling different options contracts for the same underlying asset, at the same time. In the world of vertical spreads, there are credit spreads and debit spreads. What is the difference between a credit vs. a debit spread, and how do investors use these strategies?

When an investor chooses a credit spread, or net credit spread, they simultaneously sell a higher premium option and buy a lower premium option, typically of the same security but at a different strike price. This results in a credit to their account.

A debit spread is the inverse: The investor purchases a higher premium option while simultaneously selling a lower premium option of the same security, resulting in a net payment or debit from their account.

Keep reading to learn more about the differences between credit spreads and debit spreads, and how volatility may impact each.

Why Use a Spread Strategy When Trading Options?

Options contracts give their holder the right, but not the obligation, to buy or sell an underlying asset, often a security like a stock. Having different strategies to trade options gives investors exposure to price movement in an underlying asset, allowing them to take a bullish or bearish position without having to own the security itself. Beyond the market price of the underlying, a number of factors — including the level of volatility, time to expiration, and market interest rates — impact the value of the options contract.

With so many factors to consider, investors have developed a host of strategies for how to trade options. A vertical spread comes in two flavors — a credit or a debit spread — which can involve buying (or selling) a call (or put), and simultaneously selling (or buying) another call (or put) at a different strike price, but with the same expiration. Let’s look at these two strategies for trading options.

How a Credit Spread Works

In a credit spread, the investor sells a high-premium option and buys a low-premium option of the same security. Those trades result in a credit to the trader’s account, because the option they sell is worth more than the one they buy. In this scenario, the investor hopes that both options will be out-of-the-money on the expiration date and expire worthless, allowing the investor to keep the original net premium collected.

How a Debit Spread Works

In a debit spread, the investor buys a high-premium option and sells a low-premium option of the same security. Those trades result in a debit from the trader’s account. But they make the trade in the expectation that the price movement during the life of the options contract will result in a profit. The best case scenario is that both options are in-the-money on the day of expiration, allowing the investor to close out both contracts for their maximum potential gain.

Credit Spreads

To help with understanding how credit spreads works: An investor simultaneously buys and sells options on the same underlying security with the same expiration, but at different strike prices. The premium that the investor receives on the option they sell is higher than the premium they pay on the option they buy, which leads to a net return or credit for the investor.

One important note is that credit spreads require traders to use margin loans, because if both options are in-the-money at expiration, their short leg will be more valuable than their long leg. So before a trader can engage in a credit spread, they’ll need to make sure their brokerage account is appropriately set up.

The strategy takes two forms. The first credit spread strategy is the bull put credit spread, in which the investor buys a put option at one strike price and sells a put option at a higher strike price. Put options tend to increase in value as the underlying asset price goes down, and they decrease in value as the underlying price goes up.

Thus, this is a bullish strategy, because the investor hopes for a price increase in the underlying such that both options expire worthless. If the price of the underlying asset is above the higher strike price put on expiration day, the investor achieves the maximum potential profit. On the flip side, if the underlying security falls below the long-put strike price, then the investor would suffer the maximum potential loss on the strategy.

Another factor that can work in favor of the investor in credit spread is time decay. This is the phenomenon whereby options tend to lose value as they approach their expiration date. Holding the price of the underlying asset constant, the difference in value between the two options in a credit spread will naturally evaporate, meaning that the investor can either close out both contracts for a gain or let them expire worthless.

The other credit-spread trading strategy is called the bear call credit spread, or a bear call spread. In a way, it’s the opposite of the bull put spread. The investor buys a call option at one strike price and sells a call option at a lower strike price, hoping for a decrease in the price of the underlying asset.

A bull put spread can be profitable if the price of the security remains under a certain level throughout the duration of the options contracts. If the security is below the lower call’s strike price at expiration, then the spread seller gets to keep the entire premium on the options they sell in the strategy. But there’s a risk, too. If the price of the security underlying the options rises above the long-call strike price at the expiration of the strategy, then the investor will face the maximum loss.

Debit Spreads

A debit spread is the inverse of a credit spread. Like a credit spread, a debit spread involves buying two sets of options, in equal amounts, of the same underlying security with the same expiration date. But in a debit spread, the investor buys one set of options with a higher premium, while selling a set of options with a lower premium.

While the credit spread strategy results in a net credit to the trader’s account when they make the trade, a debit spread strategy results in an immediate net debit in their account, hence the name. The debit occurs because the premium paid on the options the investor purchases is higher than the premium the investor receives for the options they buy.

Investors typically use debit spread strategies as a way to offset the cost of buying an expensive option outright. They may choose a debit spread over purchasing a lone option if they expect moderate price movement in the underlying asset.

Like credit spreads, debit spreads come in bullish and bearish varieties. A bull-debit spread can be constructed using call options, where the investor purchases a call option at a lower strike price and sells a call option at a higher strike price. The maximum potential gain is equal to the difference in strike prices minus the net premium paid up front, and is achieved if the underlying asset goes above the higher strike price call on expiration day. Similarly, one can construct a bear-debit spread using put options.

With debit spread strategies, the investor faces an initial outlay on their trade, which also represents their maximum potential loss. Unlike with credit spreads, time decay is typically working against the investor in a debit spread, since they are hoping for both options to expire in-the-money so that they can close out both contracts and pocket the difference.

Pros and Cons of Credit and Debit Spreads, Depending on Volatility

When comparing a credit spread vs. debit spread, here are a few key details to keep in mind.

Credit Spreads	Debit Spreads
Investor receives a net premium when the trade is initiated.	Investor pays a net premium when the trade is initiated.
Maximum potential loss may be greater than the initial premium collected upfront.	Maximum potential loss is limited to the net premium paid.
Requires the use of margin.	Does not require the use of margin.
Time decay works in favor of the investor.	Time decay is working against the investor.

The Takeaway

Of the many options strategies that investors employ, one popular type is an options spread: either a credit spread or a debit spread. The spread in these strategies refers to a practice of buying and selling of different options with the same underlying security and expiration date, but with different strike prices.

Key to the strategy is the fact that spreads create upper and lower bounds on potential gains and losses. It’s at the discretion of the investor to choose the strike prices of the options they buy and sell when creating the spread. This gives the investor a degree of flexibility with respect to how much risk they take on.

Ready to start investing? You can get started trading options with a user-friendly platform like SoFi. SoFi’s options trading platform offers investors the ability to trade from the web platform or mobile app, and they can also reference information about options through the library of educational resources.

Trade options with low fees through SoFi.

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Mar

2022

Guide to Risk Reversal

By Dan Miller | Growing Wealth, invest, Investing | Comments Off

Risk reversal can have two different meanings, depending on the context. From a stock market perspective, it can be a way to hedge a stock position. You can use a risk reversal option strategy to protect either a long or short position and minimize your downside risk.

Risk reversal is also used in foreign exchange trading (forex or FX) with a slightly different definition. There, risk reversal refers to the difference in implied volatility between call and put options. This can give forex traders an idea of the overall market conditions.

What Is Risk Reversal Option Trade?

Risk reversal is an options strategy that allows you to protect either a long or short position in a stock by buying put or call options to hedge your position. If you are long a stock, you can buy a put and sell a call option to protect you against extreme movements in the stock. If you are short a stock, you can use a risk reversal trade by selling a put and buying a call option contract.

How Does Risk Reversal Work?

Here is how a options traders use risk reversal options, and how you might use them to hedge a position that you hold:

Setup

How you set up a risk reversal depends on whether you are long or short the underlying stock. You’ll want to use both a call and put option contract in each case, but which one you sell and which you buy depends on if you are long or short. If you are long a stock, you will hedge by writing a call option and purchasing a put option. If you are short a stock, you will do the opposite — selling a put option and buying a call option that expires at the same time.

Profit/Loss

Let’s examine a scenario where you are long a stock and want to use risk reversal to hedge some of the risk in your position. So you sell an out-of-the-money call option and buy an out-of-the-money put option, usually at a net credit to yourself.

If the stock’s price goes up past the strike price of your call, you will profit based on the increased value of your stock holding. Your maximum loss will come if the stock’s price goes down, but your total can not amount to more than the strike price of the put option that you bought.

Breakeven

Because you generally hold the underlying stock as well as the option when using risk reversal, there is not a specific breakeven price.

Exit Strategy

Often when using a risk reversal strategy, you will keep repeating the process each month as new options expire. That way you can continue to hold the underlying stock and collect the net premium from your options each month. Eventually either your put or call will expire in the money, and you will sell your shares to fulfill your option obligations.

Maintaining a Risk Reversal

Maintaining your risk reversal will depend on the movement of the underlying stock. In an ideal situation, the stock will not make any drastic movements. If the stock’s price closes between the strike price of your call and put option, both will expire worthless. That will allow you to continue to use the risk reversal strategy and collect an additional premium.

Risk Reversal Example

Let’s say you are slightly bullish on a stock ABC that is trading at $80 per share. You own 100 shares of ABC stock and want to protect against risk. You can use the risk reversal strategy by buying a $75 put and selling an $85 call through your brokerage. Prices will vary depending on the delta or theta of the options, but you will likely receive a slight credit.

If the options expire with the stock in between $75 and $85, both financial instruments will expire worthless. Then you can continue the strategy by buying another put and selling another call. If the stock price rises above $85, your call option will be exercised, and you will close your stock position with a slight profit. You are also protected against any downward move of the stock below $75, thus mitigating your downward risk.

Forex Risk Reversal

Risk reversal has a slightly different meaning in the world of foreign exchange trading (forex), having to do with the volatility of out-of-the-money call or put options. A positive risk reversal is when the volatility of call options is higher than that of the corresponding put options. A negative risk reversal is when the volatility of put options is higher than that of call options. This information can help traders decide on which strategies might be more effective.

The Takeaway

The risk reversal options strategy is one method of protecting your investment from unexpected moves. Understanding how different options strategies work can help you learn about the stock market.

Once you’re ready to dive in, consider trying a user-friendly options trading platform like SoFi’s. Its intuitive design gives investors the ability to trade options through either the mobile app or web platform. Plus, support is offered in the way of a library of educational resources about options.

Trade options with low fees through SoFi.

FAQ

Why is it called risk reversal?

The risk reversal strategy gets its name because it allows investors to mitigate or reverse the risk you have from a long or short stock position. If you’re slightly bullish on a stock, you can use risk reversal to protect you against downward movement on the stock.

How are long and short risk reversal different?

With a long risk reversal, you are hedging against a short position in the underlying stock. You can do this by purchasing a call option and funding that call purchase by selling a put option. In a short risk reversal, you are mitigating the risk of a long position by selling a call and buying a put option.

How can you calculate risk reversal?

In forex trading, you can calculate the risk reversal by looking at the implied volatility of out-of-the-money call and put options. If the volatility of calls is greater than the volatility of the corresponding put option contracts, there is positive risk reversal, and vice versa.

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Mar

2022

What Does Bullish and Bearish Mean in Investing and Crypto?

By Paulina Likos | Growing Wealth, invest, Investing, Terminology | Comments Off

Markets are often described as being either bullish vs. bearish. These are common terms used to refer to how a market is performing over a short or longer period of time. Investors can also be bullish or bearish on a specific stock, a sector, an asset class such as cryptocurrency, or on the economy in general.

Read on to learn more about the definitions of bearish vs. bullish, where the terms bullish and bearish come from, and the bullish and bearish meaning for investors in stocks, cryptocurrency, or other markets.

What Does Bullish Mean?

Bullish refers to stock market sentiment that the direction of the overall market will go up. A market that is increasing in value over a long period of time is said to be in a bull market. A bullish trend means that there may be an upward trend in prices for an asset.

For investors, being bullish means they feel positive about a stock, index, or the overall stock market. For example, if an investor says she is bullish on Apple (AAPL) stock, the investor expects the market value of AAPL stock to increase in the long-term. That bullishness may even compel the investor to buy more shares of the company.

A bullish market is one where prices go up by 20% after a sustained 20% decline.

What Does Bearish Mean?

Bearish refers to a sentiment that the direction of securities or the overall market will move down in price. An investor characterized as a bear believes the stock market will decrease in value, even if current prices are going up. An investor investing in a bearish market may even sell shares of their portfolio if they believe the market will turn negative.

A bear market is one that has fallen 20% from recent highs and remains below that threshold for at least two months. Since investors are bearish during this period, there may be lower trading activity.

Where Do the Terms Bullish and Bearish Come From?

While there are several theories as to the origins of bullish vs. bearish. The consensus believes the difference between bullish and bearish reflects the way each animal responds when they attack. When a bull goes into attack mode, it races at its target with confidence. In a bull market, investors are confident that stock prices will rise and correspondingly, the value of the market will trend upward.

When bears attack, they swipe their paws in a downward motion and often in fear. That is why in a bear market, prices drop. When investors are bearish, they do not have confidence in stocks and usually end up selling off some of their investments.

Bullish vs Bearish in Cryptocurrency

The terms bullish and bearish have historically been used in the context of the stock market. But these terms can apply to any market, including the cryptocurrency market. The definitions of bullish and bearish are largely similar in the context of trading crypto.

When cryptocurrencies are rallying, this means crypto is in a bull market. During this period, there is strong demand and, in some cases, limited supply. Bullish crypto traders may talk about prices going “to the moon,” which refers to periods when prices might surge or suddenly spike (these price moves can also happen in times of extreme volatility).

A bearish trend in the crypto market reflects falling prices accompanied by selling. But sometimes, crypto traders may consider a bear market a great time to add to their crypto portfolio. These traders may be hoping to “HODL,” which stands for “hold on for dear life,” and refers to the goal of investors riding out volatility.

Pump-and-Dump in Crypto

Sometimes bullish or bearish movements in cryptocurrency reflect more than market sentiment. A “pump and dump” scheme in the crypto market refers to a group of market participants buying up large amounts of a cheap cryptocurrency to artificially increase its price.

They then relay positive messages about the asset to get other investors to buy in. Once prices soar, they sell off their assets and pocket the profits while others lose value.

How Bullish Markets Can Impact Investors

In a bull market, demand is greater than supply. There are many investors who want to buy stocks while only a few are willing to sell. Bullish traders tend to have long positions in stocks or other assets.

How Bearish Markets Can Impact Investors

In a bear market, supply is greater than demand — and investors look to offload their shares when there is not a lot of demand for market participants to buy. As a result, share prices decrease. A bear market is challenging for investors because stock prices keep falling, and that means more losses in an investment portfolio.

Your first instinct may be to sell in a bear market, but to increase chances of securing a profit in the long-term, it may make more sense to remain invested. Bear markets do not last forever.

Still, some investors prefer to adjust their investments in a bear market, turning to defensive stocks like consumer staples, healthcare, or utilities. They also may consider going into safer investments like bonds that offer stable fixed-income.

Bear markets can also present a good buying opportunity for investors who use dollar-cost averaging. This involves investing a fixed amount of money consistently. This way, investors can purchase stocks at a more affordable price. Learn more about

Tips on Withstanding Bullish vs Bearish Markets

One of the best investing strategies during a bull or bear market is diversification. Diversifying your investment portfolio with different securities in a variety of different industries — along with various asset classes — will protect a portfolio by minimizing losses and maximizing gains over the long-term. Diversification means buying shares of companies in different sectors and companies of different sizes, rather than just investing in a select few of stocks.

Stock Market

Investors who are not sure how to pick individual stocks can purchase an exchange-traded fund (ETF) or index fund, which are pre-selected baskets of securities all in one investment vehicle. For example, investors who own a fund that follows the S&P 500 will see their investments perform in line with that index.

In an ETF, investors own hundreds of companies, which means they don’t need to painstakingly choose one or two companies, rather, they own the entire index. This is a great strategy to ensure portfolio growth in the long-term.

Cryptocurrency

Because cryptocurrency is a relatively new asset class that has only been around for about 12 years, it can be difficult to know when a bull or bear period is approaching and how long it may last. One of the main characteristics of cryptocurrencies is their volatility. Assets with more volatility are riskier for investors. A crypto bear market or bull market can last for a period of hours, days, weeks, or months.

Crypto investors can also diversify by purchasing different types of cryptocurrencies, and keeping their overall crypto assets to a certain percentage of their wider portfolio.

The Takeaway

A market doesn’t necessarily have to be either bearish or bullish. It can actually be neither. The stock market can be in a state that is flat. This may mean there are normal market fluctuations leading to either small gains or small losses. Even if markets experience a sharp decline or rise in the short-term, this still cannot be defined as bearish or bullish because bull and bear markets are maintained over a period of time.

Whether you believe we’re in a bullish or a bearish market, a good way to get started investing is by opening an online brokerage account on the SoFi Invest® investment platform. With SoFi Invest, users can easily buy and sell stocks and exchange-traded funds directly from their phone.

FAQ

Does being bearish mean that you want to sell your crypto or other assets?

A bearish market period means investors think an asset’s price is headed downward. In some cases, people are not even aware of a bear market until it’s over because it’s difficult to predict the direction of the markets. Investors who are invested for the long run do not pay attention to the peaks and troughs of the market and take a dollar-cost averaging approach by investing consistently over time in both bear and bull markets.

What do bullish and bearish mean in crypto?

A bullish market in crypto means the value of the cryptocurrency will increase, while a bearish market means the asset will go in the opposite direction. Bearish investors are pessimistic that the market will decline — but there is so much momentum in the crypto market that when there is a bearish period, it is often seen as a buying opportunity to get more crypto.

How can you tell if a market is bearish or bullish?

Predicting and timing the markets is a challenging task. However, if stock prices have fallen by more than 20% from their recent peaks, and remained there for more than two months, that’s typically considered a bear market. A sustained increase in prices is a bull market.

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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

SOIN0122020

Implied Volatility vs Historical Volatility

Historical Volatility Definition

Implied Volatility Definition

Historical vs Implied Volatility

When to Use Historical vs Implied Volatility

Comparing Implied and Historical Volatility

How to Use Implied and Historical Volatility Together

The Takeaway

FAQ

How is implied volatility calculated from historical volatility?

Is there a difference between implied and realized volatility?

What Is a Golden Cross Pattern in Stocks? How Do They Form?

How Do Golden Cross Patterns Form?

3 Stages of a Golden Cross

What Does a Golden Cross Tell Traders?

Does a Golden Cross Work?

Benefits of the Golden Cross

Drawbacks of the Golden Cross

How to Trade a Golden Cross

What Time Frame is Best for Golden Cross?

Golden Cross Pattern in Crypto

The Takeaway

Credit Spread vs Debit Spread

Why Use a Spread Strategy When Trading Options?

How a Credit Spread Works

How a Debit Spread Works

Credit Spreads

Debit Spreads

Pros and Cons of Credit and Debit Spreads, Depending on Volatility

The Takeaway

Guide to Risk Reversal

What Is Risk Reversal Option Trade?

How Does Risk Reversal Work?

Setup

Profit/Loss

Breakeven

Exit Strategy

Maintaining a Risk Reversal

Risk Reversal Example

Forex Risk Reversal

The Takeaway

FAQ

Why is it called risk reversal?

How are long and short risk reversal different?

How can you calculate risk reversal?

What Does Bullish and Bearish Mean in Investing and Crypto?

What Does Bullish Mean?

What Does Bearish Mean?

Where Do the Terms Bullish and Bearish Come From?

Bullish vs Bearish in Cryptocurrency

Pump-and-Dump in Crypto

How Bullish Markets Can Impact Investors

How Bearish Markets Can Impact Investors

Tips on Withstanding Bullish vs Bearish Markets

Stock Market

Cryptocurrency

The Takeaway

FAQ

Does being bearish mean that you want to sell your crypto or other assets?

What do bullish and bearish mean in crypto?

How can you tell if a market is bearish or bullish?

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