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.
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 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 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.
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.
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.
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.
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 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 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.
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.
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.
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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