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Are Options Risky?

Of course, like all products, options trading presents risks. But the actual range of risks is far broader than for virtually any other investment alternative. The perception of options as always high-risk, exotic, or mathematically incomprehensible, is based largely on the industry's jargon and on some well-known but high-risk strategies like the ominous naked call. Like a bad dream, no one wants to be caught naked, right?

The solution is education. The amazing point about options is that the range of risk is so broad. Strategies can be suited to match any risk tolerance level and this is being realized more and more as mainstream stock investors discover more about options. The bottom line is that options can be used to manage portfolio risks, and not just as high-risk speculative plays.

Conservative investors can use options not for speculation, but as a hedging mechanism, to manage an equity portfolio and eliminate or mitigate market risk. Increasingly, options traders are discovering that many strategies offset risk as well as creating additional income. It is worth an examination. Most individuals cannot afford to be high frequency traders, but everyone can learn how to be high profit traders.

Yes, options are "risky." But when you compare a range of strategies to just taking long positions in stock, they reduce risk rather than increasing it. The great danger in the market is sudden and unexpected loss; this is where options can be used to protect your portfolio against that from occurring.

To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at ThomsettOptions.com where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at ThomsettOptions.com to learn more. You can take part in discussions among members on the site at the Members Forum.

I also offer a twice-monthly newsletter subscription if you are interested in a periodic update of news and information and a summary of performance in the virtual portfolio that I manage. Join at Newsletter - I look forward to having you as a subscriber.