How Does A Sharelord Protect Their Share Portfolio
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.
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 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.
Let's say a parcel of shares were purchased for $20.50 and rents them out at $21.00 collecting a premium of $1.00. The Sharelord then purchases a put option at $19.00 for $0.30 cents. They will use a portion of the premium, $1.00 to purchase the insurance policy, so in fact the up front premium for the sharelord is $0.70.
There are two things can happen by the end of the contract period, the share price can stay above the $19.00 insurance price or below the insurance price. If the share price goes drastically below $19.00 the sharelord can turnaround and sell their shares for $19.00.
If the share stays below the $19.00 put option strike price and the insurance policy contract finishes, then the shares will be sold for $19.00. We will be paid $19.00 per share. The only time the sharelord would let their shares get sold at the put option strike price is if they are in profit.
The contracts will expire worthless if the share price stays above the insurance policy price and it will disappear from their share portfolio. Another insurance policy will need to be purchased if they decide to hold onto the shares for another 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.
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 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.
Let's say a parcel of shares were purchased for $20.50 and rents them out at $21.00 collecting a premium of $1.00. The Sharelord then purchases a put option at $19.00 for $0.30 cents. They will use a portion of the premium, $1.00 to purchase the insurance policy, so in fact the up front premium for the sharelord is $0.70.
There are two things can happen by the end of the contract period, the share price can stay above the $19.00 insurance price or below the insurance price. If the share price goes drastically below $19.00 the sharelord can turnaround and sell their shares for $19.00.
If the share stays below the $19.00 put option strike price and the insurance policy contract finishes, then the shares will be sold for $19.00. We will be paid $19.00 per share. The only time the sharelord would let their shares get sold at the put option strike price is if they are in profit.
The contracts will expire worthless if the share price stays above the insurance policy price and it will disappear from their share portfolio. Another insurance policy will need to be purchased if they decide to hold onto the shares for another 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.
