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RISK, REWARD, AND SAFETY- Baseline Analysis

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RISK, REWARD, AND SAFETY Baseline Analysis Reaction and Challenge Many of them were horrified to hear that I was dealing with uncovered puts. "Too risky," they said; "It's doomed to failure;" ''The gains you make on successful deals will be overwhelmed by gigantic losses on your losers." Listening to them would have you convinced I was playing the ponies or gambling in Las Vegas. It's not hard to understand these initial reactions; after all, Characteristics and Risks of Standard Options, a joint publication of the various option exchanges, emphatically states that "as with writing uncovered calls, the risk of writing put options is substantial." This warning is repeated in the companion pamphlet Understanding Stock Options.  Few seemed to recall the statement made in the former publication: ''The risk of being an option writer may be reduced by the purchase of other options on the same underlying interest