The World stock Market selloff October 2014.

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Most Stock Markets round the world follow the US Market, including the Tadawul. Now why is the selling happening in US Market?

The American economy is strong, and the most of the selling is Psychological and fear based.

The Issues affecting the Stock Market are as follows.

1. Eloba

2. Isis

3. Russia, Ukraine

4. Slowdown in China.

5. Oil Price.

As a long term investor, it actually is a good time to buy. If a Company is fundamentally sound and its part of your portfolio, please don’t panic, you could actually buy more at a cheaper price.

Now in regards to Oil price, it is a plus sign, to some countries, but not if you are a major oil exporting Country.

Fast and Solid measures have to be taken by the Saudi Government, as other countries are using the Shale Technology to discover oil, this will ultimately bring the price down.

The good thing about stocks is that the price will go back up again; we just have to give it time.

In terms of opportunities in a market like this, there are many, one method which not common here in Saudi, but very common in America, is using a Derivatives Called options. Now I will be writing about this in detail in the future, but for now, I will just give a summary of how a person could benefit from this Market with options and using a particular strategy called Credit Spreads.

In Option trading, when you think the Market is going up you buy a Call, and when you think the Market is going down you buy a Put.

Now these derivatives have an expiration date, and at this date they expire worthless. Now with credit spread, you take both positions of a Financial Instrument. I.e. you buy and sell at the same time. However, the position you sell, most be higher in price that the price you buy and this results in a credit.

I will be writing more about options in the future and also explain some very good Strategies, such as Credit Spread.

Daniel Joseph

Financial Market Analyst