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Stocks & Commodities V. 26:7 (10-13): Letters To S&C by Technical Analysis, Inc.
Stocks & Commodities V. 26:7 (10-13): Letters To S&C by Technical Analysis, Inc.
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Letters To S&C by Technical Analysis, Inc.
OPTIONS: THE MISSING LINK
Editor,
In the May 2008 STOCKS & COMMODITIES article Options: The Missing Link, author Martha Stokes makes some good points about the dangers of option trading and the necessity of understanding the basics of stock trading. But the article also contains some statements that are likely to confuse people who are not well-versed in option strategies.
For example, in the last paragraph of the section Smaller capital base = more risks, Stokes states, If the stock moves up then the sell option expires worthless, but the buy option makes money and vice versa. However, in a straddle, the trader is either a) buying a call and buying a put, or b) selling a call and selling a put. There is no such thing as a buy option and sell option within the same straddle. Youre either buying both options or selling both options.
OPTIONS: THE MISSING LINK
Editor,
In the May 2008 STOCKS & COMMODITIES article Options: The Missing Link, author Martha Stokes makes some good points about the dangers of option trading and the necessity of understanding the basics of stock trading. But the article also contains some statements that are likely to confuse people who are not well-versed in option strategies.
For example, in the last paragraph of the section Smaller capital base = more risks, Stokes states, If the stock moves up then the sell option expires worthless, but the buy option makes money and vice versa. However, in a straddle, the trader is either a) buying a call and buying a put, or b) selling a call and selling a put. There is no such thing as a buy option and sell option within the same straddle. Youre either buying both options or selling both options.
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