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Writing Options: Higher risk higher reward

Posted By On 10/18/2008 07:47:00 AM Under

1. It is a known fact that returns is directly proportional to the risk undertaken and similarily returns rises when one takes higher risk. Options writers have higher chance of making money by virtue of time decay factor and voaltility associated with the market. Always remember that Option writers loss is unlimited but returns is limited.

2. As a word of caution option writer has a higher risk of losing money as his risk is higher as he is obligated to take or provide the delivery and if trend reverses the option writer is under a lot of tension and financial constraint. Thus this portfoli is restricted to the professionals and do not venture in this arena unless you are a professional option writer or has sufficient financial depth to bear the loss. Moreoer remember that option writers have to be satisfied with lower returns per transaction.

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