When selling PUTs in the market, value investors cover their position by purchasing a similar position in an existing low price to book stock. In effect, the position acts as a bank account in case the PUTs are activated, thus the existing stock is sold and the proceeds are used to cover the PUTs financial obligation. This also helps to diversify a value investor’s portfolio.
There is some minor risk involved, i.e. the stock purchase acting as the bank for the PUTs could go lower. However, value investors do their homework and limit downward pressure by purchasing extremely high quality stock backed by intrinsic value. This is covered in another article in the Value Investing Lessons series available to members of the Value Investment Club.
Do you want to learn how to get returns like this?
Then learn about Value Investing, a systematic conservative approach to earning excellent returns over time. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
– Risk Reduction – Buy only high quality stocks;
– Intrinsic Value – The underlying assets and operations are of good quality and performance;
– Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
– Patience – Allow time to work for the investor.
If you are interested in learning more and receiving good information, reports, charts and recommendations; join as a club member by clicking on Value Investing tab in the header above. Start your investment portfolio today.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
1) Lessons about value investing and the principles involved;
2) Free webinars from the author following up the lessons;
3) Charts, graphs, tutorials, templates and resources to use when you create your own pool;
4) Access to existing pools and their respective data models along with buy/sell triggers;
5) Follow along with the investment fund and its weekly updates;
6)White papers addressing financial principles and proper interpretation methods; AND
7) Some simple good advice.