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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 the
by 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 agoYou 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 agoI 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.