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As long as it's only a small percentage of their portfolio, seems safe enough. The max loss is the put premium. Are you getting it mixed up with selling puts, w
by ghufran_syed 5y ago
As long as it's only a small percentage of their portfolio, seems safe enough. The max loss is the put premium. Are you getting it mixed up with selling puts, where your losses are unlimited?
- hgibbs 5y agoThat's not right either, your downside for selling puts is limited by the strike (worst case is you pay K for a stock worth 0). Short call positions are the ones with unlimited downside (worse case is that you get K but have to cover the cost of arbitrarily high priced underlying).
- Bootvis 5y agoNever mind, misread
- minitoar 5y agoShort option positions which gp is referring to aren’t really...optional. You sold the option to someone else.
- Kranar 5y agoSuppose you sell 1 put for 1 dollar with a strike of 100 dollars. The worst case scenario is that the asset decreases in price to be worth 0 dollars. The buyer of the put then exercises their option to sell the asset to you for 100 dollars, hence in total you lost 99 dollars. As a general matter, the most you can lose when selling a put is the strike price - premium.
- kortilla 5y agoYou’re confusing selling (writing) options, which come with being on the receiving end of the exercise as an obligation.