> as a novice, you have no business mucking around with such dangerous things, but as an initiate, you have no need of the article.
That reminds me of an ex-girlfriend's "if you don't already know what you did wrong, I'm sure not going to tell you!"
More seriously, somewhere along the path from novice to initiate, you have a need for some material, though - be it this article or another.
Also, I'm not implying you do, but I find it funny that many people think "stocks are a fine investment, but options are dangerous".
The only real difference in risk is leverage, which is always high in options, and usually low in stocks. But you CAN get high leverage for stock trading, and you CAN restrict yourself to a small part of your capital thus "deleveraging" the effect of options on your portfolio. You need to have some experience, but definitely of the calibre of a Fugu chef, to practice these.
I think the close proper analogy is the stocks are a sharp household knife, and options are a butcher's knife.
There's a bit more to it than just leverage. Writing naked options carries huge potential downside, unlimited in the case of naked calls.
With a stock you're long, or short. Prices go up and down. Four outcomes to consider. Options are a bit more involved: covered or uncovered? call or put? long or short? Then you've got the option price and the underlying price to think about. Until you're comfortable, it's more than most can manage in their heads.
Since we're doing 'sharp tool' analogies, I'd be more inclined to go with hand saw and chainsaw. The level of potential harm you can do to yourself in an instant with a chainsaw is far greater than that you can achieve with a hand saw - and it's a much bigger difference than that between the efficiency of using a chainsaw and a hand saw. Yes, it's powerful, but it's disproportionately hazardous in untrained or careless hands.
> Writing naked options carries huge potential downside, unlimited in the case of naked calls.
The same unlimited potential downside exists when shorting a stock.
But you have to be a pro to get away from the risk & margin checking. (Unfortunately, it's actually possible to do that, and most pros do). And until you've escaped from it, the downside is limited to not much more than what you have put down as margin.
That reminds me of an ex-girlfriend's "if you don't already know what you did wrong, I'm sure not going to tell you!"
More seriously, somewhere along the path from novice to initiate, you have a need for some material, though - be it this article or another.
Also, I'm not implying you do, but I find it funny that many people think "stocks are a fine investment, but options are dangerous".
The only real difference in risk is leverage, which is always high in options, and usually low in stocks. But you CAN get high leverage for stock trading, and you CAN restrict yourself to a small part of your capital thus "deleveraging" the effect of options on your portfolio. You need to have some experience, but definitely of the calibre of a Fugu chef, to practice these.
I think the close proper analogy is the stocks are a sharp household knife, and options are a butcher's knife.