Timeline for When trading put options, is your total risk decreased if you are in a position to exercise the option?
Current License: CC BY-SA 3.0
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| Aug 15, 2011 at 16:19 | comment | added | mgkrebbs | Yes, it's an insurance policy. You have to pay $5 to get the coverage for say a month. For that period your risk of loss of your $250 (or $50, or $60, or $10,...) is eliminated in exchange for a near-certain loss of $5, the option premium. | |
| Aug 15, 2011 at 11:32 | comment | added | Alex | That's interesting, so in a way, buying the $5 option on a volatile $250 stock reduces my total risk. | |
| Aug 13, 2011 at 17:17 | history | answered | mgkrebbs | CC BY-SA 3.0 |