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| Risks Associated With Buying Naked Options |
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The main incident that turns buying a naked option into a loss is poor market timing. If you buy a call option and the price of the underlying stock falls without bouncing back in time, then you lose your premium. Buying an option that is primarily composed of time premium, and the option's volatility drops, then time premiums decline. As a result the underlying stock would have to undergo even more drastic changes to make up for the loss in time premiums. |

