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Risk Of Doing Nothing

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? In fact, for many traders, even uncovered options might not be as risky as many believe.

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.

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.

A conservative trader can use options as a cash-generating means while also protecting portfolio positions against market risk. A speculative trader can take high risks using options and generate short-term risk in the search for profits. There is a wide range in between these extremes, using the many combinations of options strategies.

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.