An investor gets a free put at strike zero by law. Could a leveraged long side trader writes a put for free without knowing it? Example: if one buys a stock at 100 on say 5:1 margin, one may implicitly writes a put at strike 80, but receives no premium in return. Is this correct? If you disagree explain why? If you agree explain why? If correct, how come the leveraged trader gives money for free? Is it the cost of knowledge or a deliberate choice? I believe that there may be people who may have even gone bankrupt because they may have not understood the part on the writing of the free put in leveraged/margin accounts. All rights are reserved.
Ho, good god... It's relatively obvious that a leveraged trader is always short the "max drawdown option". This isn't specifically confined to longs. As to what leveraged traders get in return for selling this optionality, isn't it also rather obvious? They get to trade with leverage - d'oh! - which amplifies their upside.
What is the MAX then? Assuming that you in fact know, is your assumption that the majority knows based just on your beliefs or is there a proof for it? Why don't they get paid for shorting a put (in addition to the upside), or protect themselves against that put? If it is indeed part of the deal, ask the people if their broker benefit from two things: commission AND free option, or if the free option is part of what they pay. Let us see how many from the majority would mention the free option or agree with it.
I don't understand this... Why do you care whether people know? People who have thought about it know, while people who just punt around don't. Furthermore, when you're a mkt participant, you're short all sorts of options, not just the one you describe. For instance, you have counterparty risk, so you're short the fraud option. Have people thought about it? Some, yes; many, no, but so what?
1) ?.... ??...... Are you "sure" of what you're asking? 2) You don't know.......what you don't know. :eek: 3) At the risk of confusing you even more, do you realize that to be "long" an underlying position is the same as being "long" a call-option AND "short" a put-option. That's what is known as the "synthetic". 4) People have gone bankrupt in trading because of stupidity with large losses. It's not because of having a "phantom" short-put position on their statements during a price decline.