4 ms·
Anytime you're holding stock, you obviously take a theoretical risk. How risky something is is a judgement call that each individual needs to make for themselve
by logicalmonster 4y ago
Anytime you're holding stock, you obviously take a theoretical risk. How risky something is is a judgement call that each individual needs to make for themselves.
That said, using something like a wheel strategy on stock XYZ is inherently less risky than merely buying the stock outright because the premiums can at least be collected until your target price is hit.
- hristov 4y agoWrong, it is inherently more risky. You are fooling yourself.
- logicalmonster 4y agoPlease explain how so. If you buy the stock outright: you can lose everything if the company goes out of business. If you use a simple wheel, you can still lose everything, but the blow is blunted by any premiums you collect.
- hristov 4y agoIf you use a wheel, you will lose more on average. You will be guaranteed to sell below market value and to buy above market value. Yes, with the wheel you may end up with a little bit of premiums if your stock goes to zero, but in most cases you end up worse with the wheel than owning a stock. That is because, when you own a stock you buy it at market and when you decide to sell, you sell it at market. With the wheel you end up buying and selling at prices worse than market. And if volatility is high -- significantly worse.
- logicalmonster 4y ago> If you use a wheel, you will lose more on average. You will be guaranteed to sell below market value and to buy above market value. I'm not understanding your comment. Who is forcing you to sell below market value and buy above market value?
- hristov 4y agoThe option contracts you wrote are forcing you.
- mikeyouse 4y agoMany option bets have uncapped losses.. If you buy a share of Coca Cola for $60, you could lose $60 if the company goes bankrupt. If you sell a naked call to earn the premium, you can in theory, lose an infinite amount of money.