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.
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 Sharelord selects the price they want to insure their shares for, for a specific amount of time. Generally an insurance coverage policy is bought on a per month-to-month basis.
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.
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 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 Sharelord selects the price they want to insure their shares for, for a specific amount of time. Generally an insurance coverage policy is bought on a per month-to-month basis.
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.
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.. Unique version for reprint here: Sharelord's Always Protect Their Share Portfolio Using A Portion Of Their Rental Premium.
No comments:
Post a Comment