Making Money With Option Strategies

3 Option Valuation and Portfolio Risk

Investors are constantly looking for the signals pointing to higher or lower risks. This is especially true after taking positions in stock. The expression “Wall Street climbs a wall of worry” is accurate.

The reason for this concern about risk—specifically the risk that a newly opened position will decline in value—can be traced back to an assumption some investors have, whether verbalized or not. This assumption is that the entry price is the zero value or starting point. In other words, if you buy share at $45, you expect the price per share to rise, but not to fall. The optimistic assumption is destructive, however. Every price is part of an unending struggle between buyers and sellers, and this means ...