I once speculated in (stock) options. I lost. What I learned from the experience was that it is hard enough predicting which way prices will go in the future, getting the date right at the same time is almost impossible.
I also learned that the winners are those who sell options. Since 95% of all options expire they have a good income stream from the premiums. This proves, once again, that you need money to become rich. $2 per share on a 100 options gets you $200, but if you are rich you can sell 10,000 options, then your activity is worth doing.
All this is a preface to my saying, I won't guess, I have no rational basis on which to pick a number. Policies not Politics ---- Daily Landscape
The option seller main risk is in evaluating the parameters of the model used and the adequacy of the model used to future moves of the underlying price.
PS: I work for a big option seller.
But your point is well taken. Trading this stuff is not for widows and orphans.
With covered options if the option gets exercised you have only an opportunity cost. For example the option is at $10 the stock goes to $15 and is exercised. You get the $10 and the option premium (say $2). So you end up with $12. If you had just held the underlying stock you could have sold it for $15 yourself, thus a $3 opportunity cost. Big sellers deal on a statistical basis, just like insurance companies, so this should all be allowed for in the cost of the option itself.
Naked options are another matter. In this case you can lose more than you invested. This isn't investing it's gambling. Policies not Politics ---- Daily Landscape
Gambling is not the right term. Speculating is better IMO.
