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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Trebor who wrote (1853)10/27/1998 3:25:00 PM
From: MrGreenJeans  Read Replies (2) of 15132
 
Risk Management

There have been instances where the stock has been called away
even when it did not exceed the strike price by expiration.

Okay, and investors should be aware of this possibility. But I'll stick to my guns that this is the rare exception and not the rule

That is exactly my point. One must be fully prepared for the 3 standard deviation move. The move that has a zero chance of happening according to the probability tables; the move that will not happen in your lifetime. Well guess what...these moves happen more often than the probability table suggests. When they happen people lose their homes, lose their children's education funds and lose their retirement accounts. Some go bankrupt. Some are out of business permanently. All because they think the move will never happen to them. People who hedge against these moves are wise people indeed! It is the rare move that you must hedge against to avert financial ruin.

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