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Worried that your share portfolio may fall in value? Why not take out some insurance?
By: George Slater

Over the past couple of years the falls in the value of superannuation and investment portfolios have been widely reported. Its been all doom and gloom with the press often reporting how many billions of dollars have been wiped off people’s investments.

We all know that investments are cyclical and that smart investors hold their nerve through the tough times. History shows that markets have bounced back even higher after every low. But how can we ease our minds during those tough times?

Many investors take advantage of insuring the value of their portfolio by buying put options on their stocks.

A put option gives you the right, but not the obligation, to sell your stock at a given level at any point in time up to the expiry of the option.

Let’s say, for example, that you own BHP shares and paid $8.80 for them. You are worried about the state of the market and, whilst you don’t want to sell your stock, you also don’t want to see it fall away sharply.

You can insure your stock’s value and give yourself absolute down side protection by buying a put option with a strike price of say $8.78 or possibly $8.54. That way you don’t care how much BHP falls away, you’ve got the option to sell them at those prices any time you like.

Of course, if BHP continues to rise you don’t need to exercise the option. You can say that it has cost you money to buy the put if the stock goes up, but it also costs you money to insure your house, and you don’t get angry if it doesn’t burn down, do you?

It is extremely important that before entering into any option contracts you read and become conversant with the ASX’s option booklets and terms and are comfortable that they are suitable for your style of investment.

About the author:
George Slater
www.the-web-master.com
www.1st-retirement.com

George Slater is an Options Trader and author of “Retire Rich using DIY Retirement Funds”. George lives in Perth, Western Australia with his family and trades the US and Australian Options Markets from home. George has experienced trading with Shares, CFDs, Warrants and Options. He trades both personally and within his DIY Retirement Fund. He follows the works of Gann and Elliot and is a member of two trading education groups.

George has appeared on several radio programs and writes a regular newsletter, Superwatch, about DIY Retirement Funds.

Tel +61 8 9291 7343
©George Slater

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These property, finance, stock market & business articles have been supplied in the interest of Universal Wealth Creations visitors who want to expand their knowledge in the wealth creation & investment fields. All the business, finance, stock market & business articles have not been read as they are submitted remotely, so if you find any questionable facts in here or simply do not like it, please email webmaster@universalwealthcreation.com and we will review the material. As we find time to do so, we will go through all articles and remove any that appear not suitable. Other sites we recommend here at Universal Wealth Creation are: 21st Century Academy with Jamie McIntyre, Investor Finance, Universal Trading Solutions which promotes great wealth creators like: Kim Reilly, Simon Martin, Justin Beeton, Louise Bedford, John Kaye, Daniel Kertcher & more. They run great seminars across the country. At times we will publish dates for these seminars as they are made available around the counrty. Meanwhile, there is a great opportunity to learn about the finance, stock market & property investment field through reading these kind of articles. Learn about share trading, options, futures, CFD's, derivatives, warrants, indices & more in the stock market. You will also learn plenty about business, finance & property investing through authors opinions in the marketplace. Enjoy your journey towards financial freedom. We hope you will enjoy your visit.

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