You lost $1000, because you were smart enough to buy insurance, when the stock declined. When the stock got down to $25, you said, “Okay, I’m going to cash in my insurance policy. I’m going to buy 632 more shares.” Let’s round it off to 1600 shares, and use the other 32 shares to buy additional put insurance, so that there is no additional out-of-pocket expenses, to hold these 1000 shares of Apple.
At the $125 level, the stock started stabilizing. We didn’t get out at the top. We didn’t get out at $190. We got out at $185. We had plenty of opportunities to sell the stock at $185. Now, because we have 1600 shares at $185, the difference between $125 and $185 is $60 per share.
We take the 1600 shares that we have. Remember, we started out with 1000. We cashed in our insurance policy, and bought 600 more, and used the other 32 shares to purchase more insurance. It ran up another $60.
Let’s see where we would have come out. Let’s multiply that by $60 a share. We get $96,000 of profit.
Right here, we bought 1000 shares, at $200 a share. That equals $200,000. Right at $125, we cashed in our insurance policy, and made $79,000 on our puts.
At the same time, we purchased an additional 600 shares, at $125 a share. We purchased an additional 600 shares, and our loss so far is only $1000. This is because we had our insurance policy.
The stock dropped $80 a share. We cashed in our insurance policy for $79,000. Our maximum loss is $1000 so far. Now, the stock runs back up to $185. We have 1600 shares of stock, because we added the 600, at $185.
That equals a $96,000 profit on 1600 shares. The stock ran up $60. We start out with 1000 shares. That’s a $200,000 investment. Cash in our insurance policy. We ran it up. We made between $125 and $185 – that’s $60, times 1600 shares.
That was a $60 run up in the price of the stock. That gives us a $96,000 profit, minus the 1000 that we lost. Minus our 1000 loss, that equals a $95,000 profit.
You can see that even though we purchased the shares at $200, and we sold them at $185, we made a $95,000 profit, based on the management of this trade, when we had our put insurance, cashed it in, bought another few shares, for the eventual run-up in the price of the stock.
That’s how powerful this method of trading stocks is. Okay, guys. That’s it for this particular module. In the next module, this is just an incredible way to trade – when you understand the fact that you have insurance on your stock that you can use to buy additional shares. When it goes back up, you can actually increase your profits.
When you make a purchase of a $200 stock, and it only goes to $185, and you make a $95,000 profit, that’s pretty powerful. Stay tuned for the next explosive strategy. I think you’re going to be interested in this, and how to buy stocks, at a very cheap price. You know what? If the market doesn’t cooperate, I get paid lots of money for just waiting around.
Stay tuned for that. Trade with confidence.