Teaching our Kids in Buying Insurance of our Stocks
It is very important to learn on how to protect our individual stock or portfolio against market downturn. Buying protection of your stock against. You might think that this sound too complicated to kids but my 9 years old kid and 11 years old kid started already about option trading. Our stock market tournament in the house continues. August 2002, my oldest kid gain approximately 79% of the his portfolio while my younger ones loss almost 50% in one month. The tournament is about buying 3 or more stocks which they think will go up worth $ 100,000 of fictitious money and at the same time buying option $ 100,000. The first three option strategy that I did introduce to my kids were buying puts which is betting that the stocks will down , buying calls thinking that the stocks will go up. The third strategy is called straddle. This is buying put and call with the same number of contracts, the same strike price and the same expiration date. We bought 30 days contracts. The time horizon contracts in real trading is probably to short and do not have enough time to move. However, for the just learning purposes, I choose stocks that fall greater than 30% from its high, with a overvalued fundamentals, with a beta of greater than 1.5, having a chart than is in consolidation phase. I explained the terms about what is in buying in the money, out of the money and at the money. To my surpise, the younger one pick up meaning of those just like one click start of an engine. So I continue inctroducing other terms like protective puts. Kivin was asking to if he can buy protective put all the time to protect the stocks.
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