Hi TCI,
You're absolutely right about the theoretical infinite return. I failed to mention, however, the nature of my intentions with the trade, which highlights the overall risk/reward tradeoff. In a private message to someone just recently, I wrote:
"...As for me, I've still tended to be a pure-equity guy. The only option ventures I've stepped into are shorting puts for the bullish effect. My most fun/un-fun play was with QCOM, when I wrote puts while the stock traded at $122. It promptly ran up 20 points within a few hours, locking me out of any upside gain.
I learned with that situation that I probably should have exposed myself to the pure equity, because had the underlying moved against me, I still would have likely covered the short put. Hence, my losses would have been comparable, but I locked myself out of any upside potential.
I made money in any case, and I suppose that's the best kind of situation where you want to be learning things from the market. 95% of the time, I'd usually have to be the one paying to learn these things..."
That's what I meant about my particular tradeoff. Given my exit strategy, my losses would have been comparable, but my returns would not have been.
Rainier
PS. Glad you could join us. |
