Option contracts are literally insurance, they inhenrently have capped downside. It's like buying a time-bound flood insurance policy that covers 100% of losses after a deductible.
- If there is no flood, then you lose 100% of the contract value, but the insurance price was cheap compared to the property anyways, so no worries.
- If there is a flood and your house loses half its value, your insurance policy is now worth 50% the value of the property, which is a lot compared to what you paid.
Dumb people take it to the extreme. Instead of buying 1 contract for 1 property, they dump their entire portfolio buying 1000 contracts on 1 property. And when the insurance expires unused, they scream “I lost all my money buying contracts. It's literally gambling.”
Well anything can be gambling if you leverage 100% of your account into it.
Leave a Reply