A sharelord can rent out their shares and earn an income on a monthly basis; and what many investors don't know is that the sharelord's share portfolio can be insured against any downside risk.
An inexperienced investor normally just purchase shares blindly and also is exposed to 100% risk on the shares. These same investors will always purchase an insurance policy on their own home, so why don't they purchase and insurance policy on their share portfolio? Well that's simple they don't know that it can be done.
The same thing happens on the share market. A Sharelord purchases a parcel of shares and then insures their shares by buying a put option on those shares. They select the price which they wish to insure their shares for.
Normally when a parcel of shares are purchased, those shares are rented out to speculators. The speculator pays us a premium and by utilising a portion of that premium, an insurance policy is purchased to cover any downside risk.
The price that the shares are insured at is selected by the sharelord and it's only valid for a certain amount of time. The shares are normally insured a month at a time.
If a parcel of shares were bought for $20.50 and rented out at $21.00 gathering a premium of $1.00. The Sharelord then buys a put option at $19.00 for $0.30 cents. They will use a part of the rental premium, $1.00, to acquire the insurance policy, so in reality the up front premium for the sharelord is $0.70.
By purchasing a $19.00 put option, the shares are insured at $19.00 and if the stock drops down dramatically, the shares can be sold for $19.00. In the life of a trade. there are two things that can happen, 1. the share price stays above the $19.00 put option price or 2. the share price stays below the put option strike price.
By the price going down below $19.00 by the time that the contract finishes, the shares can be sold for $19.00. The sharelord should only sell their shares at that price if they are in profit.
If the share price stays above the put option strike price, then the insurance contract will expire worthless and disappear from the share portfolio. If the sharelord hangs onto the shares all they need to do is purchase another insurance policy to cover their shares again for the following month.
An inexperienced investor normally just purchase shares blindly and also is exposed to 100% risk on the shares. These same investors will always purchase an insurance policy on their own home, so why don't they purchase and insurance policy on their share portfolio? Well that's simple they don't know that it can be done.
The same thing happens on the share market. A Sharelord purchases a parcel of shares and then insures their shares by buying a put option on those shares. They select the price which they wish to insure their shares for.
Normally when a parcel of shares are purchased, those shares are rented out to speculators. The speculator pays us a premium and by utilising a portion of that premium, an insurance policy is purchased to cover any downside risk.
The price that the shares are insured at is selected by the sharelord and it's only valid for a certain amount of time. The shares are normally insured a month at a time.
If a parcel of shares were bought for $20.50 and rented out at $21.00 gathering a premium of $1.00. The Sharelord then buys a put option at $19.00 for $0.30 cents. They will use a part of the rental premium, $1.00, to acquire the insurance policy, so in reality the up front premium for the sharelord is $0.70.
By purchasing a $19.00 put option, the shares are insured at $19.00 and if the stock drops down dramatically, the shares can be sold for $19.00. In the life of a trade. there are two things that can happen, 1. the share price stays above the $19.00 put option price or 2. the share price stays below the put option strike price.
By the price going down below $19.00 by the time that the contract finishes, the shares can be sold for $19.00. The sharelord should only sell their shares at that price if they are in profit.
If the share price stays above the put option strike price, then the insurance contract will expire worthless and disappear from the share portfolio. If the sharelord hangs onto the shares all they need to do is purchase another insurance policy to cover their shares again for the following month.
About the Author:
Work With Danny Younes will teach you how to insure your share portfolio while still generating an income each month. Discover how to cover your downside risk with Sharelord and have that sleep at night factor that you deserve.. Check here for free reprint license: A Sharelord's Share Portfolio Can Be Protected From Any Downside Risk.
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