It has been said that option selling is extremely risky due to the fact that it has the potential for unlimited losses. How do you address this issue?

Answer

The potential for "unlimited losses" in option selling is a myth! Driving an automobile is risky and extremely dangerous for someone who doesn’t know how to drive. If we were to consider the great risks involved in driving, there would be very few drivers around, yet we see millions taking this so-called risk. Why? Because for the experienced and safe driver, the risk of him causing an accident is almost totally eliminated. Of course, there is the risk of another driver being careless and causing an accident. In this respect, the option writer is in a safer game than the driver in that there is no second party that can create a dangerous situation for him. The experienced and knowledgeable option writer is in full control of his trading system and knows how to organize his trades so that the “unlimited loss” factor is kept to the bare minimum and may be totally eliminated. If a situation arises where it can’t be eliminated, the risk factor is so greatly reduced that its ill effects are minimal. Much less than if you owned stocks in a down market.

Updated on April 25, 2018

Original Article:

Stock Options Trading Is Like Owning an Online Casino
By Daniel Mollat
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