Oh really. http://dictionary.reference.com/search?q=risk risk - The danger or probability of loss to an insurer. Looks like the definition includes both magnitude of loss and probability of loss..
Which is riskier: 1. a position that will only lose money once a millenium, and make on average $5 every other day. On the day that there is a loss it will be about $10. 2. a position that will lose about $5 every day, except once a millenium, in which case you'll make $5. By your definition it is the first scenario that is riskier. Thank you for providing liquidity.
selling options naked carries no more risk than being long or short a stock 1 naked call = short 100 shares of XYZ 1 naked put = long 100 shares of XYZ The amount of risk is the same
These posts are pretty funny. Keep them coming!! Imagine someone lecturing me about money management and risk. I am the poster child for leverage of less than 1 to 1
the amount of risk is not the same i already explained why try arithmetic 101, then graduate on to options
What sounds better, a Les Paul, or a Stratocaster? Depends on the song, the player and the mood. They're both used to make music. I use 'em both. What has more risk, a naked call or naked put? Depends on the stock, the investor and the trend. They're both used to make money. I use 'em both.
Arnie Guitar said - "What sounds better, a Les Paul, or a Stratocaster? Depends on the song, the player and the mood. They're both used to make music. I use 'em both." well, i play a telecaster and a Ibanez artist model, so imo - NEITHER but seriously, the above is OPINION risk (in many cases) can be defined numerically. in the case mentioned (nekkid calls vs. nekkid puts) it is not opinion. it is fact. opinion would be "which is BETTER nekkid calls or nekkid puts?" that is analogous to your above example. and fwiw, i would say there are good reasons to use either strategy in different situations, and with different instruments. but it is indisputable that a NAKED call has unlimited risk. that is a matter of math, not opinion . which guitar sounds better (my amp goes to ELEVEN) is opinion naked calls have undefined risk. naked puts have DEFINED risk indisputable
Whitster, do you think it is riskier to have a position that has a high probability of losing every time albeit not very large losses than to have a position that has a very low probability of losing (and thus a high probability of winning every time), but when it does suffer a loss, that loss may be larger than any individual loss in the first position (although probably less than the aggregate loss of the first position)? You talk as if the answer is no.
Not entirely correct. Vega risk can be substantial and often exceeds the option delta. I've witnessed many scenarios in which the stock loses a quarter and the calls gain on a pop in vol. Call vols went from 25 to 90 in the '87 crash. Notwithstanding that Whitster moron; the upside is unbounded by definition.