If you are still with us folks, and you vaguely understood what we wrote about, we are actually going to show you the steps we would take to “insure” a portfolio with a current value of either $50,000 or $100,000 based on holdings of mainly S&P500 stocks.
Now, we have made the imaginary “insurance” purchase based on 1 of the options available, as follows:
16 Month Contract expiring Dec. 2017 (P 180 – $7.23 per SPY share/100 shares per contract)
$723 x 2 = $1,446 “premium” (actual option cost) roughly covers a portfolio of $50,000 worth of common stocks (plus commissions)
$723 x 4 = $2,892 “premium” (actual option cost) roughly covers a portfolio of $100,000 worth of common stocks (plus commissions)
So, to “insure” your portfolio with options will cost you roughly 3%. Should the market go down 10% or 20%, you can cash in on the residual value of your “insurance” policy at any time. The main benefit of all of this is peace of mind. No longer do you have to worry about the stock market collapsing as your options will compensate for stock market downturns. If the market goes up more than 3% prior to December 2017, you will lose your premium but your stocks will make a profit. An added benefit is that you can cash in your options at any time you feel it would benefit you.
We will keep an eye on the value of the options and report back when anything significant happens.
I would recommend that you ask your financial advisor if this would be right for you. We are private investors and not industry professionals and have nothing to gain from anyone else’s financial dealings or decisions.