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That'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 one
by hgibbs 5y ago
That'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.