Did you know wealthy people actually buy insurance on their stock portfolios? And did you know you can do the same thing? All you have to do is learn how. In the next few moments I'm going to share 3 ways you can insure your portfolio.
Back in 1973 when CBOE (Chicago Board Options Exchange) was created few investors knew how much power options trading would allow. Fast forward 35 years and options trading is more popular than ever. However while professional investors and traders have been using options now for many years, most retail, or every day investors, know very little if anything at all about options.
Even now, after all these years, I still meet financial advisors and retail portfolio managers (better said salesmen) who roll their eyes when I say I trade options. True, for the completely uneducated options can present some unique risks and... shall we say money missing opportunities... But for those who take the time (which is not much) to learn about options the benefits far exceed the risks. In fact most are finding options less risky to trade than stocks. And most important they are finding options to be a simple and safe hedge or insurance policy against loss.
Here are three powerful ways you can use options to insure, or protect, your stock portfolio.
1) Protection Against A Crash
You have invested $100,000 in stocks and suddenly the government announces the economy is about to come to a complete stop. Sound extreme? Thats practically what happened this past summer. So what do you do with your stock?
Enter - the Put Option. Put Options are one of the 2 basic types of options. They literally insure you against loss just like AllState or Progressive insures your house against destruction. While many people lost money during the crash of 2008, millions also protected their money. In fact it's one of those small little dark corner secrets wealthy people have known for years - and now you know it too!
2) Rent your stock for income
One of the most popular options strategies for retail investors is the use of a Call Option to create income on their stocks. Call options allow you to sell someone the right to use your stock while the market is moving down. It sounds counter-intuitive but if you held stock through the crash and want to regain some of your losses, this is the single best way to do it.
3) Combining Puts & Calls
Some people just love their stock and they never want to sell. But news still happens. If you know news is coming out related to your stock and you are afraid it may negatively affect you, using both a Put & a Call Option will insure your position. Your stock will stay safe through the news, and you can actually make a little money in the process.
These are just three of the ways you can use options to limit your risk. There are actually over 100 different strategies and ways to use options - all designed to limit risk and increase income. To learn more about options and how they can limit your risk try taking my FREE E-class teaching the "Basics of Stock Options". You can find it here: http://www.thefinancialpuzzle.com/FPE-courses/signup.html When you have options on your side, you can not go wrong! Jeremy Whaley is Co-founder of The Financial Puzzle, a company dedicate to helping others understand and achieve financial freedom. He is an avid stock market trader, entrepreneur, and professional musician. Visit the website at http://www.TheFinancialPuzzle.com Article Source: http://EzineArticles.com/?expert=Jeremy_Whaley |
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