GENERAL INVESTING SECTION

Ever traded options, think you understand them? If so, what's the correct answer to this simple question below -

Q: What's the maximum loss on the following position -

What is the maximum loss on the following position

• ABC stock is trading at 39.00
• Buy 10 36.00 calls @ 1.70
• Buy 10 39.00 puts @ 1.90

Note that each put/call is on 100 shares, so the costs are therefore -

• 10 x 1.70 x 100 = 1,700
• 10 x 1.90 x 100 = 1,900
• Total Cost = 3,600 for the 10 calls and 10 puts

So the maximum loss on the option position must be 3,600, right?

WRONG - The maximum loss is actually only 600

If you answered 3,600 like most people then our advice is simple, don't trade aother option contract until you've read this excellent book by Charles Cottle - Options Trading: The Hidden Reality

• It's available in print for $85 or via a PDF file at $45 - Click here for more details
• Cottle has released a free 91 page PDF download of the book so you can check it out - Download the book (PDF format)
• Also available is a 2 page review on the book (PFD format)