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Am I missing something? If GLD drops and your initial put was ATM and the buyer exercises, then you lose.
by uncomputation 5y ago
Am I missing something? If GLD drops and your initial put was ATM and the buyer exercises, then you lose.
- perl4ever 5y agoThat can happen occasionally. But the idea is that you limit the amount so as to only lose as much as if you owned shares of it in the first place, and therefore any losses are sustainable, temporary, and not frequent. Given the conviction it has to go up in the medium term. Can you really imagine selling insurance against gold cratering in the near term being disastrous, barring leverage which can always ruin you? I think it's probably important, for managing risk, to have the self control to only hold as many short contracts as you have cash for assignment, and also not to get greedy when the price moves in your favor, but wait until the end of the week to swap them for a different strike. The downside scenario is gold dropping 50%, or 100%, which just seems implausible, maybe more implausible than in living memory.