: What’s the max loss on a call/put options contract? I know what a call/put is but is the max loss the contract premium?
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If you are buying options, the worst case scenario is that the option contract expires worthless while you still hold it, in which case you lose the initial premium paid for the contract and nothing more.
If you’re writing (selling) the contact, for puts your loss could be as much as the strike price (since even if the stock falls to zero, you would still be obligated to sell shares at the strike, purchasing them for zero if necessary). For calls, your losses could be indefinite if you don’t already hold the shares, since if the stock price climbs infinitely, you would be forced to purchase shares at far higher than the strike price.
>I know what a call/put is but is the max loss the contract premium?
Yes, this is what an option really does compared to going long and short. When buying an option compared to going long or short, really what you buy is less risk in capital in exchange for more risk in time (theta decay).
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