Why Options? (Part 3)

This blog series is focused on making the positive case for option trading.  In the last installment, I gave some historical backing for why the financial industry may be telling us that options are too risky.

The suggestion that options are “too risky” is, in my opinion, complete myth. From http://www.marketwatch.com/story/5-options-trading-myths-2012-05-07:

“Myth #1: Options are too risky
This myth has survived for centuries because some people have misused options… [which has given] them a bad name.”

From http://www.dailyworth.com/posts/2476-how-risky-is-it-to-invest-in-options:

“Options have the unfair reputation of being considered riskier than other investment vehicles… in a book written by a well-respected duo of female financial advisors… Whereas they consider stocks to be moderate-risk investments, they include options in the high-risk category along with junk bonds, highly leveraged real estate and penny stocks.”

Some truth about options is given in The Rookie’s Guide to Options (2008) by Mark Wolfinger:

“Options were designed to be risk-reducing tools.”

“[Options] are used to hedge risk, so the myth that options are too risky is not true.”

“Options are risky if you don’t understand how to use them… but by themselves, options are not risky… the real risk is with the options trader.”

In the next post, I will begin discussing some benefits to options as a trading vehicle.