M9A Insurance Regulatory Exam Blog Post No 3

Wed, May 1, 2013

Investment

I have written 2 blog posts, sharing with you on how options work. Click the link below to read them again.

1) http://helmihakim.com/investment/m9a-insurance-regulatory-exam-blog-post-no-1/

2) http://helmihakim.com/investment/m9a-insurance-regulatory-exam-blog-post-no-2/

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Now, you have a clearer understanding on how option works. In this blog post, I am  going to share with you today on 4 most commonly use, option strategies. They are….

1) Covered Call Strategy

2) Protective Put Strategy

3) Bull Straddle (also known as Long Straddle) Strategy

4) Bear Straddle (also known as Short Stradel) Strategy

I have created the diagram below while studying for my finance degree, to sum up and make it as easy as possible to comprehend. ( You can click on the image to view the full image)

options

 

1) Covered Call Strategy

You own the stock and you sell call option.

 

 

2) Protective Put Strategy

shiled

You own the stock and you buy put option.

Example, you own XYZ shares. The share price now is $50/share. You anticipate a bad news announcement, and are afraid that the share price might goes down. So you buy a put option, with a strike price of $50, by paying a small premium. If the share price goes down to $30, its okay, because you have the right to sell it at strike price of $50.

It is like paying premium for term insurance policy. Death or total and permanent disability happens, family gets money. If nothing happen, you just forego the term insurance premium.

 

 

 

3) Bull Straddle Strategy

bull

You buy call and put option at the same strike price and expiration date.

You do this when you expect that there will be a sharp move in stock’s price in either direction, during the life of the options. You profit from the increased votality in the underlying stock’s price.

Example, if you as the investor expects an important court ruling which outcome can be very GOOD or very BAD for the company, you employ a bull straddle strategy.

 

 

4) Bear Straddle Strategy

Polar Bear Portrait

You sell call and put option at the same strike price and expiration date.

You do this when you expect the stock price to remain steady, and don’t move, thus allowing to earn option premium.

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At first, it might be a bit difficult to grasp these 4 option strategies, because we, as financial advisors in Singapore hardly use this derivative instrument. However, it is crucial to understand, as we upgrade ourselves to be a competent financial consultants, to better service our clients.
Stay tuned for my next blog post! 🙂

 

p.s. By the way, if you wish to discover a simple & halal way to create a positive monthly cashflow and calculate your net worth for FREE, then please click here…

My other related posts that may interest you:

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This post was written by:

- who has written 418 posts on The Official Helmi Hakim Website.

A certified financial consultant, Helmi Hakim has won praise for his patience, perseverance and practicality when solving his clients' financial concerns. For more information on how you can manage your finances better, contact Helmi Hakim at 96520134.

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2 Responses to “M9A Insurance Regulatory Exam Blog Post No 3”

  1. Carla Says:

    Your blogs are very helpful indeed! I’ll be taking my M9A exam on Friday, I hope I could pass. Thanks for your blog 🙂

  2. Helmi Hakim Says:

    All the best Carla! 🙂


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