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tbh, the problem with options is that you can loose a lot of money that you don't have. People start to play with strategies without fully grasping how they wo

tbh, the problem with options is that you can loose a lot of money that you don't have. People start to play with strategies without fully grasping how they work, and especially how exposed you are if you sell naked options. It's very easy to fall into the trap of creating an option strategy that even if it has good odds, will require a massive amount of margin. If this happens to you on a regular retail account, you're going to get crushed.

ssharp 6y ago
This is easily avoided by not writing option contracts. If you're new to options and are ready to start exploring with real money, you should only be buying them and then selling them, not writing new ones. The exact same thing can be said for shorting stocks and, to a lesser extent, buying stocks on margin. I'm happy to say after getting margin-called in 2008, I haven't been since! Writing options and shorting makes you way more likely to expose the rest of your portfolio to that risk.
- nemo44x 6y ago
  You can write spreads and not have infinite downside risk. Iron condors are designed to collect premium and you’re covered (at a loss, but a fixed loss) if the stock goes one way or another too far. Of course at that point we are already more advanced than a YOLO casino roller. But yes, in general it’s wise to avoid bets with infinite downside and limited upside. You tend to win these bets frequently (and make small gains) but when you do lose it’s catastrophic.
  - Pyramus 6y ago
    I would like to add that even with a spread you can bankrupt yourself if you are assigned to one side of the leg on expiration day after hours, stock moves against you, you aren't notified in time and therefore can't exercise the other leg. It's rare but not that rare.
    - TuringNYC 6y ago
      Can the losses exceed the total account equity, with recourse?
      - Pyramus 6y ago
        Theoretically yes, see e.g. the calculations here youtube.com/watch?v=no_q6sJXjm8 I do not know how this is handled in practice and who is ultimately liable to exercise the other leg.
OJFord 6y ago
That's a possibility only if you write ('sell', but as in to the buyer of a call or a put, not the same as (buying) a put) options though. The buyer of an option has exactly that - an option. Buyer downside is limited to the premium, the price paid for the option.

ssharp 6y ago

This is easily avoided by not writing option contracts. If you're new to options and are ready to start exploring with real money, you should only be buying them and then selling them, not writing new ones. The exact same thing can be said for shorting stocks and, to a lesser extent, buying stocks on margin. I'm happy to say after getting margin-called in 2008, I haven't been since! Writing options and shorting makes you way more likely to expose the rest of your portfolio to that risk.

nemo44x 6y ago
You can write spreads and not have infinite downside risk. Iron condors are designed to collect premium and you’re covered (at a loss, but a fixed loss) if the stock goes one way or another too far. Of course at that point we are already more advanced than a YOLO casino roller. But yes, in general it’s wise to avoid bets with infinite downside and limited upside. You tend to win these bets frequently (and make small gains) but when you do lose it’s catastrophic.
- Pyramus 6y ago
  I would like to add that even with a spread you can bankrupt yourself if you are assigned to one side of the leg on expiration day after hours, stock moves against you, you aren't notified in time and therefore can't exercise the other leg. It's rare but not that rare.
  - TuringNYC 6y ago
    Can the losses exceed the total account equity, with recourse?
    - Pyramus 6y ago
      Theoretically yes, see e.g. the calculations here youtube.com/watch?v=no_q6sJXjm8 I do not know how this is handled in practice and who is ultimately liable to exercise the other leg.

OJFord 6y ago

That's a possibility only if you write ('sell', but as in to the buyer of a call or a put, not the same as (buying) a put) options though. The buyer of an option has exactly that - an option. Buyer downside is limited to the premium, the price paid for the option.