Unit 4 · Level 1 · Buying options well
Defined risk: the honest superpower
Remember leverage from the Trading course? Margin calls, liquidations, positions blown up by a single overnight gap. A bought option carries none of that. Your worst case is the premium, full stop, known before you click buy. That's defined risk, the honest superpower of option buying. No superpower is free, though. The price is that you hit that worst case often.
Free to play. No ads, no token, no account needed to start.
What you get asked
You buy a call for €150. The stock halves overnight. Your worst case?
A bought option cannot lose more than it cost. No margin call, no forced liquidation, no debt. The crash just makes your ticket worthless.
How does a bought option differ from the leveraged futures you met in the Trading course?
Leverage via futures can force you out at the worst moment; leverage via bought options can't. You pre-paid your maximum loss.
Match each position to its risk profile.
Same market, four very different worst cases. Option BUYING is the defined-risk corner of this map. Selling naked is the opposite corner.
Defined risk means your worst case is fixed ___ you enter the trade.
You choose the maximum damage in advance, and the market can't renegotiate it later. That's rare and valuable in trading.
What's the catch hiding behind defined risk?
Capped doesn't mean unlikely: options routinely expire worthless. Defined risk protects your account, not your win rate. 🐜
The rest of this unit
Defined risk, lottery tickets and IV crush: buy movement without burning the account.