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The Bullet Proof Stock Market Strategy

Aug 1, 2008
For most people who play with the idea of investing in the stock market, it is usually the thought of losing all their money that stops them going any further.

There is a strategy that allows you to completely insure yourself against any loss at all, while at the same time allowing you full upside potential gains. To protect your capital then you would first have to purchase some good quality shares that you or your Stockbroker have the view that they will rise in value.

The trick here is to select one or a few of the big stocks out there, that have a good proven track record and are fundamentally sound. Before you place the trade ensure that you have picked your exit point, and when you will take profits if that is included on your plan.

Now to protect your investment, you will have to purchase insurance in the form of a put option seven to nine months away from expiry. Put options depending on what country you live in, will cover either 100 or 1000 shares. The price of the put option will be around 5% of the underlying share price. You will have to include this price in your break even costs.

Purchase 30% more put options than you actually need to cover your capital. We purchase an extra 30% more put options so as to cover the cost of the option. This is the real key to fully protecting your investment.

If the share price slides down a lot then you actually stand to make a little money because the price of your put options will go up so much that if you do need to sell the underlying shares, then you can exercise your options and walk away with your entire capital back in your pocket.

You will need to keep an eye on the share price if it is staying neutral. The worst case scenario here is that the underlying share price stays quite flat. If this is the case it would be wise to sell your put options a month before expiry, and then purchase another put for a period further out.

If you sell your put more than a month before expiry then you will limit the time decay on your option and will only lose a small portion of the monet that you spent on the put option. This is an awesome strategy that allows you to safely enter the markey and hold big positions, and you can sleep well at night knowing that even if the share price goes down to zero, you will still make some money.

Knowing this sort of information could just be the reason to enter the market and kick start your trading and investing career.
About the Author
Want to find out more? We expose the secrets of the wealthy. Visit our Wealth Creation website. Download your free 230 page E-book from The 21st Century Academy website. You can Learn How To Trade Options here.
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