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.
Many investors purchase shares without any protection and their portfolio is 100% exposed. Would you not take out any insurance on your property portfolio? Of course you won't. The insurance policy on your investment property is there to be used if something goes wrong with your property. The insurance company will pay you out for the agreed value on the property.
The way that an insurance policy works on a home, it works exactly the same on the share market. A parcel of shares are purchased by the sharelord an their shares are insured by purchasing a put option over them. The price that the shares are insured for is selected by the sharelord.
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.
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.
Many investors purchase shares without any protection and their portfolio is 100% exposed. Would you not take out any insurance on your property portfolio? Of course you won't. The insurance policy on your investment property is there to be used if something goes wrong with your property. The insurance company will pay you out for the agreed value on the property.
The way that an insurance policy works on a home, it works exactly the same on the share market. A parcel of shares are purchased by the sharelord an their shares are insured by purchasing a put option over them. The price that the shares are insured for is selected by the sharelord.
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.
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 cover your downside risk with Sharelord and have that sleep at night factor that you deserve.
No comments:
Post a Comment