The main virtue of buying options
Ernie Chan (noreply@blogger.com)
I realized that I have omitted the most obvious virtue of trading options instead of stocks in my last post: the much more attractive reward-risk ratio for options. Suppose your stock strategy generated a buy signal. You can either buy the stock now, or you can buy an ATM call. If you buy the stock, you are of course benefiting from 100% of the upside potential of the stock price movement, but you are similarly exposed to 100% of the downside risk. Indeed you can lose the entire market value of