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Ira wrote...
>> The greater looser is often the option writer, the covered call. That
party has limited his/her profit and has unlimited loss (the value of the
underlying). <<
I generally agree with your contributions, Ira, but have to correct the
above statement... even if the underlying goes to zero, the loss is not
"unlimited." As you pointed out, the loss is limited to the value of the
underlying when the position was taken on (less the value of any covered
call). While I wouldn't argue that losing the entire position would be
catastrophic, there is a "limit" to the downside. If it were a futures
trade, that limit could indeed grow substantially, but it is still bounded
at zero.
The statement WOULD be true in the case being short the underlying... as you
pointed out, the underlying could go to "infinity" and the loss would then
be "unlimited."
Thanks for your thoughtful (and thought provoking) posts.
Dick Crotinger
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