Are there any risks whatsoever to a buyer of a long call or put option?

Question

I have been led to believe that the writer is the only one who would ever have to surrender shares of a stock in options trading, that the buyer only loses his investment of premium in the call or put at the most. Is this true?

Answer 1

It is true, the buyer of the put or the call looses only his premium or value he paid for the option in case the stock remain 'remain out of the money'.

Answer 2

You are correct. The risk is that you will lose your investment in the premium. A good way to look at it so you can appreciate the risk of options is to compare the investment to a stock. Options are usually purchased for one month, so in a month you either make some money or lose your entire investment. Would you invest in a stock where you lose 100% of your investment 75% of the time? If you want to get into options I would suggest learning about covered calls. It is a more complicated strategy but it is the only option strategy that is allowed in IRAs and it has been proven to outperform the S&P 500. If you are interested in this strategy, I recomend doing it in your IRA because there are short term capital gain consequences

Answer 3

Yes,the risk is the amount of money you put in to buy that option.

That is the risk you have to take. because the premium of the option will loses the value upon expiration of the option or when the stock is going in the direction against you.

Hope this help

Cheers
Leo

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Answer 4

That is correct. The most you risk is the call or put premium as long as you are buying the options.

If you are buy a call you have the right, but not the obligation, to buy shares, so you would never be forced to buy shares.

If you buy a put you have the right, but not the obligation to sell shares, so you would never be forced to sell your shares.