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 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.
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.
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 insurance policy will expire worthless and vanish from the share portfolio, if the share cost stays above the put option price. If the sharelord hangs onto the shares, all they need to do is acquire an additional insurance policy to cover their shares 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.
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.
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 insurance policy will expire worthless and vanish from the share portfolio, if the share cost stays above the put option price. If the sharelord hangs onto the shares, all they need to do is acquire an additional insurance policy to cover their shares 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.. Free reprint available from: How Does A Sharelord Protect Their Share Portfolio.
This article collected, selected and written by: Author Van Hoc
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