Shares can be rented out by a Sharelord who can earn an income each month and what many mum and dad investors don't know is that their share portfolio can also be insured.
Numerous investors purchase shares without any knowledge that their portfolio is 100 % exposed. Would you not take out any insurance coverage on your investment property? Of course you won't. The insurance policy on your investment property exists to be utilised if something goes wrong with your property. The insurance company will pay you out for the agreed value on the home.
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.
Generally when a parcel of shares are acquired, those shares are rented out to speculators. The speculator pays us a premium and by utilising a part of that premium, an insurance coverage is acquired to cover any downside risk.
The Sharelord selects the strike price they wish to insure their shares for and that insurance policy that is purchased is valid for a certain amount of time. Usually an insurance policy is purchased on a per monthly basis.
So if shares were purchased for $20.50 and rented out for $21.00 and the sharelord was paid $1.00 for renting out those shares. A portion of the premium collected can be used to purchase an insurance policy. So if a $19.00 insurance policy was purchased for $0.30 then the up front profit will be $0.70.
By buying 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. There are 2 things that can occur, 1. the share price stays above the $19.00 or 2. the share price can decrease below the put option 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.
Numerous investors purchase shares without any knowledge that their portfolio is 100 % exposed. Would you not take out any insurance coverage on your investment property? Of course you won't. The insurance policy on your investment property exists to be utilised if something goes wrong with your property. The insurance company will pay you out for the agreed value on the home.
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.
Generally when a parcel of shares are acquired, those shares are rented out to speculators. The speculator pays us a premium and by utilising a part of that premium, an insurance coverage is acquired to cover any downside risk.
The Sharelord selects the strike price they wish to insure their shares for and that insurance policy that is purchased is valid for a certain amount of time. Usually an insurance policy is purchased on a per monthly basis.
So if shares were purchased for $20.50 and rented out for $21.00 and the sharelord was paid $1.00 for renting out those shares. A portion of the premium collected can be used to purchase an insurance policy. So if a $19.00 insurance policy was purchased for $0.30 then the up front profit will be $0.70.
By buying 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. There are 2 things that can occur, 1. the share price stays above the $19.00 or 2. the share price can decrease below the put option 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 reduce your risk with Sharelord and have that sleep at night factor that you deserve.
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