Dolinar Janko,
Re: Risk/reward in Puts and Calls in up and down trends
In an uptrend, Calls give you leverage on the trend, and traders picking the right vehicle (CSCO, QCOM?) can make giant paper profits riding the bull.
In an uptrend, the only way to make some money on puts is to short them on every dip.
In a downtrend, however, money can be made on both sides of the trade, because corrections are bigger and the market in general more volatile. But as perceived risk is higher, the i.v. rises and lifts the premiums, thus increasing time erosion.
The main thing about a down trend, or bear market, is to wipe out the excess money. People have to lose a lot, and trying to make money from a down trend either way is fighting the trend. Best thing to do is to stay in cash. If you don't lose money during the depression I guess you'll be in the top 5% of investors.
ATG |
