I’m going to give you an introduction to a couple of strategies and terms popular amongst Jamie’s graduates. These strategies work well for generating cash flow and can be protected against loss.

Insuring

Insuring shares is Jamie’s term, the market would refer to it as purchasing a Put Option. What this means is that you have bought the right to sell a share at a specified price before the expiry date of an option. Option is the term used to describe the contract between a buyer and a seller also it should be noted there is no obligation to buy with this contract just an option.

This method allows you to protect yourself against a fall in the value of a share by fixing the price for the duration of the insurance no matter how far the share value falls. So what you have done when insuring (buying a Put Option) is protected the value of your investment by buying the right to sell it at a predetermined value regardless of how far the price has fallen in the market. With this strategy you are able to balance your risk and reward.

Renting

Renting is his term for a strategy known as covered calls or buy/write. This method is used when an investor is after cash flow. Not all shares can be rented and they must be purchased through an accredited broker usually in lots of 1000. For the types of shares available under this strategy the amount of funds required is around $20,000.

After your shares are purchased they are then offered back to the market and this is where this strategy takes place. Another investor offers to rent (covered call) those shares with the option to buy them should they reach a predetermined price. The buyer is expecting the share price to rise and has locked the purchase price at the predetermined value. You as the owner of the shares will be paid a rental income (premium is the market term)plus if the share reaches the predetermined price you sell them (you are exercised) at a profit to you.

In this case you will also have insured your shares should the price fall. So even if this happens and you experience a small loss your loss is reduced even further because of the rental income you received.

These simplified terms that Jamie has assigned to share strategies is just to make them a little easier to understand.

Make today count

Teresa and the Team at

Australia Wealth

www.australiawealth.com.au