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So your saying if you don't manage your risk you will lost a lot of money ? Thats goes without saying which is why its called risk. The purchase I talked about

by dkhenry 14y ago

So your saying if you don't manage your risk you will lost a lot of money ? Thats goes without saying which is why its called risk. The purchase I talked about exposed me to my purchase price in risk. In reality the risk was less since _everyone_ for every stock purchase should always set trailing stops to limit risk. In my theoretical trade of purchasing a put option on GOOG you are exposed to a maximum of you outlay in risk ( no ballooning risk ) and if like you should you set a trailing stop you further limit your risk to a small subset of the initial outlay. Also to further prove that your wrong. The SEC has rules in place requiring that investors are not allowed to have to mush risk in their portfolio. Had you done what you jsut claimed and did a naked short on GOOG with no protection you would have been required to either pony up a large cash reserve ( protecting your broker from the liability ). Most responsible brokerages won't even allow your trade to go through unless again you have a large enough portfolio to absorb any reasonable risk. This by the way is only using options for speculation. They have lots of other useful purposes and you haven't even discussed things like covered calls and using options as insurgence against volatility.

gfodor 14y ago
It doesn't seem that your read my comment since my entire point is that you seem to be acting like the buy-side of options is the 'nuclear weapons' the OP is warning people about. The buy side of options is perfectly "safe" since it is only really leveraged on the upside. It's the sell side that is a concern and requires extreme caution since it is leveraged on the downside. I'm not sure what you are claiming I am "wrong" about since nothing I said in my previous post was an opinion but simply explaining facts around the risk factors involved to make sure readers of this thread don't mix up the buy side and sell side of options and their associated risks. You can get naked put option permission at many brokerages once you have done some trading. Also your point about stops is irrelevant: the way you get burned by short options isn't from a stock price slowly grazing down past your stop, it's when the value of the company objectively changes by 5-10% overnight or instantly intra-day due to some event or disclosure. The rarity of this situation is the very reason that the risk in short options is easy to ignore since you are selling insurance against tail risks and usually don't have to pay up to the buyer. (Covered calls can be viewed as 'income for the price of potential gains' or 'insurance for short sellers' depending on how you want to view it. The same argument applies on both types of options.)

by dkhenry 14y ago

gfodor 14y ago

It doesn't seem that your read my comment since my entire point is that you seem to be acting like the buy-side of options is the 'nuclear weapons' the OP is warning people about. The buy side of options is perfectly "safe" since it is only really leveraged on the upside. It's the sell side that is a concern and requires extreme caution since it is leveraged on the downside. I'm not sure what you are claiming I am "wrong" about since nothing I said in my previous post was an opinion but simply explaining facts around the risk factors involved to make sure readers of this thread don't mix up the buy side and sell side of options and their associated risks. You can get naked put option permission at many brokerages once you have done some trading. Also your point about stops is irrelevant: the way you get burned by short options isn't from a stock price slowly grazing down past your stop, it's when the value of the company objectively changes by 5-10% overnight or instantly intra-day due to some event or disclosure. The rarity of this situation is the very reason that the risk in short options is easy to ignore since you are selling insurance against tail risks and usually don't have to pay up to the buyer. (Covered calls can be viewed as 'income for the price of potential gains' or 'insurance for short sellers' depending on how you want to view it. The same argument applies on both types of options.)