None of us like to see our shares decline. Fortunately, there are some reasonably reliable signals that may tell you it’s time to exit your investment.

What Put Options Can Tell You

One signal is the action of put options. A put option is a financial contract that gives the buyer the right, but not the obligation, to sell a specified amount of an underlying security at a predetermined price, known as the strike price, within a specified time frame.

The buyer of a put option believes that the underlying stock will drop below the exercise price before the expiration date. Put options increase in value as the underlying asset falls in price. They are typically used for hedging purposes or to speculate on downside price action.

When the yield of a put option rapidly rises, that is a sign that investors are betting on a decline in the share price of the stock.

For example, consider the following returns on puts, courtesy of Fidelity.com:

These are yields that you could get by selling puts on various companies as of 5/10/24. I have learned to think of this as a list of overvalued stocks.

Consider the top company on the list, Trump Media & Technology Group (NSDQ: DJT). You could sell a put with a strike price of $35.00 and an expiration date of 9/20/24 and receive a premium of $16.50. The annualized yield on this put (annualized “Yield to Strike”) is 129.26%.

As someone who recommends put trades to investors every month, I have to say that is an incredible return. I target low risk annualized returns of 10% to 20%, but here you have a return that is ten times that.

But it signals a widespread belief that this stock is set to decline. Incidentally, I discussed my own put trade on DJT in April in DJT: Another GameStop Opportunity? As a quick update and brief digression, so far that trade has earned 84.2% of the total profit potential, and I am on the cusp of closing it early.

Now, I will be the first to admit that high put premiums don’t guarantee that a stock price is set to decline. But in my experience, most of the time you see very high put premiums on a stock, that underlying stock will decline over the next six months. If you bookmark this post, I would bet that in six months the vast majority of the companies in that table will be trading lower than they are today.

This information can certainly be useful to you if you own any of these companies. If you have any inclination to sell them soon, then pay attention to the put yields.

Another Sell Signal

One other sell signal in my experience is if short sellers are borrowing your shares. I previously described a program in which you can loan your shares to short sellers and earn high returns. See How to Get New Income Streams From Your Stocks.

Although it is true that you can earn high yields on certain stocks, these are stocks that investors are heavily betting will decline. In my experience, most of the shares I have loaned have subsequently declined. So, I have learned to interpret this as a potential sell signal for the company.

On the other hand, earning triple digit interest rates for loaning my shares isn’t a bad trade-off. So, even though there is a high probability that my shares will decline, sometimes the interest I earn more than offsets that eventual decline.

In any case, these are two reliable signals of a pending share price decline.

WATCH THIS VIDEO: The Magnificent Seven Ride to The Rescue

PS: Amid today’s uncertain investment conditions, are you looking for new sources of investment growth? Consider cryptocurrency. That’s right…crypto.

Crypto is making ordinary investors rich…and it serves as an inflation hedge, to boot. But you need to make your move now, because the fuse is lit on this market. And every day you wait is literally costing you thousands in profits.

If you’re worried you can’t figure out crypto…don’t be.

Our in-house crypto expert, Alex Benfield, will make it easy for you. You won’t have to figure anything out on your own. He’ll walk you through everything, step by step.

Alex made a personal fortune on crypto. Now, his mission in life is to spread the word about crypto and make other people wealthy, too.

Get in on the crypto action…now. To learn more about Alex’s new trading service, Crypto Trend Investor, click here.