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Strategies & Market Trends : Three Amigos Stock Thread
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To: Sal D who wrote (7782)8/16/1998 8:57:00 PM
From: Sal D   of 29382
 
Call options example #2:
Have you ever had the price of a stock you owned dip to your stop loss price triggering your sell order and then seeing the stock price rise again but you were already stopped out. The intent of the stop order is also to limit risk, the call option however while having limited life and limited loss does not have limited price. If the stock price dips and then rallies during the life of the option, you as the call purchaser still benefit in the stock price rise above the options break even point. This is an advantage over the stop loss order but it's disadvantage is it has a higher cost then purchasing the stock outright. It does however have the benefit of limited risk. A stock purchaser will profit more then a call purchaser if the stock price rises, but has a higher risk potential then the call purchaser. This again is just an alternative, with a different set of trade offs.
Joe
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