Basic Stock and Option Strategies
The Risky Stock Trade
Buying stock is an easy investment to make. And this is what most people do. You simply buy a stock, hope that it goes up, then sell it. What could be simpler?
The problem with this kind of trade is that it can be very risky. Stocks go down as well as up. Although theoretically there is no limit to the upside potential, you can also have a total loss of capital.
Go back and look at the risk graph for a long stock purchase in Figure 2.3.
What Is the Risk?
Believe it or not, this can be one of the riskiest trades that you can make. There is absolutely no protection to the downside. You might say though that you haven’t really lost anything if you do not sell the stock. You’ve simply ...
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