05:44:00
A sharelord can rent their shares and generate an income on a regular monthly basis and what lots of investors don't understand is that the sharelord's share portfolio can be insured against any risk.
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.
Shares are rented out to speculators who pay the sharelord a rental premium up front for renting those shares out. What the sharelord can do is use a portion of the rental premium to purchase an insurance policy and reduce their risk on the investment.
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.
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.
The shares will be sold for $19.00 if the share cost goes below $19.00 when the insurance policy contract finishes. The only time the sharelord would let their shares get offered at the put option price is if they're 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.
Shares are rented out to speculators who pay the sharelord a rental premium up front for renting those shares out. What the sharelord can do is use a portion of the rental premium to purchase an insurance policy and reduce their risk on the investment.
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.
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.
The shares will be sold for $19.00 if the share cost goes below $19.00 when the insurance policy contract finishes. The only time the sharelord would let their shares get offered at the put option price is if they're 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.
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