No Risk Trader
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Hmmm...without correcting the math. Using what you have:
100 shares of a a $20 stock would cost you $2000.
The options at a $1.00 for that same 100 shares of the $20 stock cost $100(Premium)
$2000 vs $100.....where are the hairs to split regarding cost?
Options allow you to reduce you initial risk on a trade(see above), if your $20 stock,(you picked it for whatever reason and thought it would rise), went to zero and you where long the stock you would have lost $2000. Same scenario if you owned the Option you loses would be capped at....$100!
Options my friend is Chess....not checkers!
Illiquid?? Only SPY??
Unlike stocks you have an indication of Open Interest in every contract and volume. If you buy a stock you don't know how many sellers there are at the price you want to pay or vice versa, if you are a seller, you don't know how many buyers their are interested in buying at your price. You do with Options.
Any transactional fees should be sourced for best pricing and execution.
You did previously say you have to know what you are doing....
That...is correct.
"....you have $20 stock with ATM(at the money) at 1.00. ($100 premium)..."
"...100 shares of that is $2000..."
"...For the shares, 1% would = $20. ...{
"...But for the options, $100 = 1% of $10,000...."
"... Not the same deal at all. They all say that options are cheaper than shares, but in reality they come with a cost...."
"...You could say I'm splitting hairs here, but I don't think I am. In reality, you need a lot of money to get into options....".
--
Options are still 1 contract = 100 shares.
Let's say you have a $20 stock with ATM options listed at $1 ($100 premium), which would normally be considered cheap. 100 shares of that is $2000, but the options are 1/10th the cost. Now let's assume our risk on a trade is 1%, and that (per what HWSteele mentioned) our stop loss for options is the premium.
For the shares, 1% would = $20.
But for the options, $100 = 1% of $10,000.
... Not the same deal at all. They all say that options are cheaper than shares, but in reality they come with a cost.
You could say I'm splitting hairs here, but I don't think I am. In reality, you need a lot of money to get into options. I would easily say $10k is the bare minimum to not lose your shirt being undercapitalized. Options are also quite illiquid outside of the most heavily traded assets such as SPY, so the premium = stop loss assumption is not unfair. You see figures like 4 billion contracts traded every year or something, though reality is that most of e'm are done through SPY. The spreads are otherwise horrendous in my experience.[/QUOTE]
100 shares of a a $20 stock would cost you $2000.
The options at a $1.00 for that same 100 shares of the $20 stock cost $100(Premium)
$2000 vs $100.....where are the hairs to split regarding cost?
Options allow you to reduce you initial risk on a trade(see above), if your $20 stock,(you picked it for whatever reason and thought it would rise), went to zero and you where long the stock you would have lost $2000. Same scenario if you owned the Option you loses would be capped at....$100!
Options my friend is Chess....not checkers!
Illiquid?? Only SPY??
Unlike stocks you have an indication of Open Interest in every contract and volume. If you buy a stock you don't know how many sellers there are at the price you want to pay or vice versa, if you are a seller, you don't know how many buyers their are interested in buying at your price. You do with Options.
Any transactional fees should be sourced for best pricing and execution.
You did previously say you have to know what you are doing....
That...is correct.
"....you have $20 stock with ATM(at the money) at 1.00. ($100 premium)..."
"...100 shares of that is $2000..."
"...For the shares, 1% would = $20. ...{
"...But for the options, $100 = 1% of $10,000...."
"... Not the same deal at all. They all say that options are cheaper than shares, but in reality they come with a cost...."
"...You could say I'm splitting hairs here, but I don't think I am. In reality, you need a lot of money to get into options....".
--
Options are still 1 contract = 100 shares.
Let's say you have a $20 stock with ATM options listed at $1 ($100 premium), which would normally be considered cheap. 100 shares of that is $2000, but the options are 1/10th the cost. Now let's assume our risk on a trade is 1%, and that (per what HWSteele mentioned) our stop loss for options is the premium.
For the shares, 1% would = $20.
But for the options, $100 = 1% of $10,000.
... Not the same deal at all. They all say that options are cheaper than shares, but in reality they come with a cost.
You could say I'm splitting hairs here, but I don't think I am. In reality, you need a lot of money to get into options. I would easily say $10k is the bare minimum to not lose your shirt being undercapitalized. Options are also quite illiquid outside of the most heavily traded assets such as SPY, so the premium = stop loss assumption is not unfair. You see figures like 4 billion contracts traded every year or something, though reality is that most of e'm are done through SPY. The spreads are otherwise horrendous in my experience.[/QUOTE]