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It’s unlimited because in the time he is holding cash there’s no limit to the amount the stock market could increase. If he sells a stock for $10, and then it
by mattmaroon 6y ago
It’s unlimited because in the time he is holding cash there’s no limit to the amount the stock market could increase. If he sells a stock for $10, and then it goes from $10 to $10,000 he’ll only be able to buy back 1/1,000th of what he had. He lost $9,990.
It’s the same as writing call options. There’s defined upside and unlimited downside.
- gowld 6y agoBy that theory everything has unlimited loss potential. "Loss potential" (downside risk) in finance refers to money you lose, not money you could have made by doing something else. https://www.investopedia.com/terms/d/downsiderisk.asp https://www.investopedia.com/terms/d/downsiderisk.asp
- mattmaroon 6y agoYeah I was just explaining what I was pretty sure he meant.