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Chapter 4. The options primer

Chapter 4. The options primer

The commercials tout options as “the best of both worlds.”Unlimited profit potential with limited risk.” Sounds wonderful, so why would anyone trade anything else?

The reality is that when trading options, as with every financial instrument, there are advantages, but certainly there is no free lunch. Actually, there are probably more ways to lose money when trading options than with any other financial instrument. You give something up for the limited-risk feature, but it just might be worth it to you to give this something up. I know people who trade only options and wouldn't think of touching futures. Many of these people do quite well. I know others who have told me options don't work for them; they despise the added costs, and most options expire worthless. Like anything else in the speculative world, options requires good judgment, a sound game plan, and at times a bit of luck.


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