How to protect your investments
Mar 2, 2009
I remember a few months ago a good friend of mine was driving his vehicle in the early hours of the morning after leaving a nightclub in the city. At that time, it is normal that the streets are desolate and therefore ventured to cross a red light, but to his astonishment appeared out of nowhere it hit another vehicle sending it heavily against the corner of a shop nearby. The next day I learned of the accident, I called to ask how he was and what I said was: "Thank God nothing happened !.... Also the car was insured."
It seems that when it comes to vehicles, people are very much in agreement to buy insurance. This is because no matter how good a driver is a person, there is always a very high risk of injury either by itself or recklessness of others.
Normally most people consider their home and their vehicle as their most precious investment, which is why the vast majority are inclined to purchase insurance to protect those investments. In my opinion purchasing insurance is a wise decision, not only because it is protected, but because you can sleep peacefully. Have you bought insurance for their actions in the bag?.
Securing your actions in the bag
Although the culture of insurance applies very well for tangible goods that seems to be not as popular as investments on the stock exchange concerned. Most people buy shares in the stock market without knowing that there is an insurance that can protect against the fall in markets, in other words, the vast majority of investors in the street put their money in short positions.
When you buy insurance for your car, it responds by a large percentage of original purchase in case of a disaster. When you buy insurance for their actions, this will reimburse a large portion of its investment in the case of a financial disaster, that simple!.
How to buy insurance
At this very moment I'm writing this article, the price of the shares of General Electric Co. (GE) is paying $ 12.46/acción. Suppose you buy 100 shares of GE at the same price (total cost $ 1246 without fees). In this example, your maximum risk is losing the total investment equivalent to $ 1246. This is a classic example of an exposed position with a 100% risk.
To protect your investment against a possible drop in price, all you need do is give the order to your broker to buy the contract you put in the money closer to current price. A put contract is a legal agreement that commits a package of 100 shares and in which you purchase the right to sell this package of 100 shares at the price agreed in the future.
For example, the contract Put money in the nearest one is a $ 12.46 strike price of $ 13. In other words, no matter if in future the price of GE fell to $ 2 you bought the right to sell its package of 100 shares at $ 13/acción.
What is my risk and my total cost?
The cost of this insurance will be linked to the time of application that you want for your contract. For example, if you buy now with a maturity of June 19 of 2009 (129 days to date) then the cost of each contract is $ 234.
Total investment:
100 shares of GE = $ 1246
1 contract PUT JUN-09 = $ 234
Total investment (no fees) = $ 1480
Risk Total = $ 1300 - $ 1480 = - $ 180
Means that your maximum loss is not $ 1246 but $ 180. In other words, you cut your risk almost 85%!. That is the magic of information and knowledge!.
It seems that when it comes to vehicles, people are very much in agreement to buy insurance. This is because no matter how good a driver is a person, there is always a very high risk of injury either by itself or recklessness of others.
Normally most people consider their home and their vehicle as their most precious investment, which is why the vast majority are inclined to purchase insurance to protect those investments. In my opinion purchasing insurance is a wise decision, not only because it is protected, but because you can sleep peacefully. Have you bought insurance for their actions in the bag?.
Securing your actions in the bag
Although the culture of insurance applies very well for tangible goods that seems to be not as popular as investments on the stock exchange concerned. Most people buy shares in the stock market without knowing that there is an insurance that can protect against the fall in markets, in other words, the vast majority of investors in the street put their money in short positions.
When you buy insurance for your car, it responds by a large percentage of original purchase in case of a disaster. When you buy insurance for their actions, this will reimburse a large portion of its investment in the case of a financial disaster, that simple!.
How to buy insurance
At this very moment I'm writing this article, the price of the shares of General Electric Co. (GE) is paying $ 12.46/acción. Suppose you buy 100 shares of GE at the same price (total cost $ 1246 without fees). In this example, your maximum risk is losing the total investment equivalent to $ 1246. This is a classic example of an exposed position with a 100% risk.
To protect your investment against a possible drop in price, all you need do is give the order to your broker to buy the contract you put in the money closer to current price. A put contract is a legal agreement that commits a package of 100 shares and in which you purchase the right to sell this package of 100 shares at the price agreed in the future.
For example, the contract Put money in the nearest one is a $ 12.46 strike price of $ 13. In other words, no matter if in future the price of GE fell to $ 2 you bought the right to sell its package of 100 shares at $ 13/acción.
What is my risk and my total cost?
The cost of this insurance will be linked to the time of application that you want for your contract. For example, if you buy now with a maturity of June 19 of 2009 (129 days to date) then the cost of each contract is $ 234.
Total investment:
100 shares of GE = $ 1246
1 contract PUT JUN-09 = $ 234
Total investment (no fees) = $ 1480
Risk Total = $ 1300 - $ 1480 = - $ 180
Means that your maximum loss is not $ 1246 but $ 180. In other words, you cut your risk almost 85%!. That is the magic of information and knowledge!.
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