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Actually less trouble than short selling, where the loss, in theory, is unlimited. On options losses are capped to the money invested. Nevertheless, you shoul
by CaptainZapp 4y ago
Actually less trouble than short selling, where the loss, in theory, is unlimited.
On options losses are capped to the money invested.
Nevertheless, you should consider that a host of professional traders with much better equipment and connections are betting against you.
- Majromax 4y ago> On options losses are capped to the money invested. On long options -- a purchased call, purchased short, or a combination -- then losses are capped to the money invested. On short options, losses are potentially unlimited. Understanding the difference is obviously extremely important. > Nevertheless, you should consider that a host of professional traders with much better equipment and connections are betting against you. I'd rather suggest that professional and sophisticated traders are arbitraging against you. Options market makers are not usually in the business of taking a directional stance -- they don't care one way or the other about whether Musk will buy Twitter. Instead, they seek to sell you the option but buy back the risk more cheaply, beginning with dynamic hedging that is impractical for a single retail investor with limited capital.
- SamReidHughes 4y agoYes, and if you have a tight bid/ask spread, that means there is a professional trader that agrees with you, just at a slightly different price.
- FabHK 4y ago> On short options, losses are potentially unlimited. On a short call, your loss is unlimited. On a short put, it is limited to the strike price, because the stock price can't go negative.