Thoughts About Options

There is no question that options have the ability to limit investment risk. If an option costs $500, then the maximum that can be lost is $500. A defining principle of an option is its ability to provide unlimited opportunity for profit, with limited risk. This safety net comes with a cost, though. According to data collected from 1997 to 1999 by the Chicago Mercantile Exchange (CME), 76.5% of options held until expiration expired worthless. Faced with this glaring statistic, it is difficult for a trader to feel comfortable buying and holding an option for too long.