21st Century Academy

Investing made Easy

In today’s post we will look at beginning to invest in the Stock market and just how easy it is to do so. With the right investment strategies, it is always a good time to invest in shares.

Before you do rush out and invest in some shares, you must realise that there will be time when you do lose money on a trade, or as I like to say, make a donation to the market. However, with a proper trading plan, and careful risk management, these donations will be kept to a minimum.

Knowing this, it is generally a good move to find a good Stock Broker who will work with you to achieve your financial goals. I strongly recommend that you get a good full service Broker instead of a discount online Broker. Although a little cheaper to use, an online Broker can not give you the financial advice specific to your needs that a full service one can.

You will need to set up a trading account with your Stock Broker, and of course fund it as well. Most of these accounts are cash management accounts, so any money just sitting in there will be generating interest for you.

There are many Stock Market strategies that you can use, however it is best to find ones that are working in current market conditions, and ones that are suited to your personality type and trading experience. It is important that you have already begun to get a good Stock Market education, like the one I received at The 21st Century Academy.

Once you and your Broker have worked out the strategies that you will be using, you can contact your Broker on the telephone when you would like to place a trade. If it is a standard long position then the money will be debited from your trading account on the third trading day after, or T+3, while any Options legs that you use are T+1.

That is just a very brief overview of how to get started in the Stock Market, and of course there is a lot more to know than that before you place any of your money in a trade.

Protect Your Capital At All Times

In today’s post we will have a look at putting your money in to the Stock market and ensuring that you protect your capital. There is just one strategy that I will touch on today, and it involves the use of Options.

The great majority of my clients are share trading because they want to produce a monthly income to substitute or replace their income. They have been doing this through a great Stock market Strategy called Renting Shares, or Writing Covered Calls. Up until early this year, that very simple strategy has worked great and made a consistent and lucrative income for many people.

Due to the changing market conditions though, we now have to also take into effect that markets do go down, and do go down a lot. What if there was a similar income producing strategy that also allowed you to insure yourself at a price that will still see you making a very handsome profit?

So why don’t we continue Renting out your Shares, and then insure your shares at a couple of dollars under what you paid for them. To purchase insurance or a Put Option at this price will only cost you a small fraction of the profit that you are receiving from writing your Covered Call.

So let’s look at an example here. We purchase 1000 Shares of company XYZ at $10 each, $10,000 all up. Then we would rent them out or write a Covered Call somewhere not to far out of the money, so maybe at $11. For this we will receive a premium of 45c, which equates to $450. Now what we would do is purchase your insurance, or buy a Put Option some where deep out of the money, at maybe $7. We will need one Put Option, and this may cost .08c, or $80 per contract (if working in contracts of 1000 shares).

That will leave us with a net premium of .37c or $370 per contract. We know the stock can do one of three things. If it goes up above the Strike Price we can get exercised and we great a capital gain on top of our premium. If the share price stays around the same price then we still have our premium and we can rent the shares out again the next month.

If the shares tank though, and head due south pretty quickly, you have complete protection at the price that you insured them for, and in this case you can sell your shares if you so wish, at $7. The maximum you can donate back to the market is $3 per share, less your initial premium of 0.37c so that means your real loss can only be $2.63 per share.

This is just one great Stock Market Strategy that is being taught at The 21st Century Academy right now, and all Homestudy members get access to this and many more like it.

Renting Shares Made Easy Part 1

For the last few decades, the rich and wealthy persons and establishments of the world have been trading derivatives, and in particular, trading options. A derivative, is a financial instrument that derives it’s price from the underlying share.

Option Trading came into popularity in the 1970’s, and to the educated investor, it has become a lucrative way to produce a regular and high income against their Share Portfolio. There is one particular strategy, that is simple to use, although up until recently, has been out of reach of the average person. This strategy is called Writing a Covered Call Option, or more simply, Renting Shares.

Share Renting gives an investor, the ability to hold a portfolio of Blue Chip Shares and rent them out on a monthly basis and receive rent or what is more commonly known as a premium. This premium is received by the Share Holder the next day, and is theirs to keep regardless of what the underlying share price does.

This is purely an income producing strategy, and results are usually around 3% for every month that you can rent the shares out. There will be certain months of the year when you would not rent your shares out, however, you could normally do it on average ten months of the year. This is due to among other things, the underlying share going ex-dividend.

So, 3% per month for say ten months would give you a return of 30%, although we’ll be conservative here and say 25% return on investment for the year. Bank interest at the moment is unusually high at around 7.5% pa, so this is a much better return. On a portfolio of $100,000 we are looking at an income of $25000 per year. Not bad for one phone call per month to your Stockbroker.

In the next post, we’ll go into further detail of this very powerful income producing strategy that is Renting Shares.