21st Century Academy

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.

Written by Clint Maher - 21st Century Academy
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