17 lines
1.2 KiB
Plaintext
17 lines
1.2 KiB
Plaintext
Chapter 42: The Best Strategy? 937
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out in-the-money. In general, however, the constant purchase of time value premi
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ums, which must waste away by the time the options expire, will have a burdensome
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negative effect. The chances of large profits and large losses are relatively equal on a
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mathematical basis, and thus become subsidiary to the time premium effect in the
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long run. This mathematical outlook, of course, precludes those investors who are
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able to predict stock movements with an above-average degree of accuracy. Although
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the true mathematical approach holds that it is not possible to accurately predict the
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market, there are undoubtedly some who can and many who try.
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SUMMARY
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Mathematical expectations for a strategy do not make it suitable even if the expect
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ed returns are good, for the improbable may occur. Profit potentials also do not
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determine suitability; risk levels do. In the final analysis, one must determine the
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suitability of a strategy by determining if he will be able to withstand the inherent
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risks if the worst scenario should occur. For this reason, no one strategy can be des
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ignated as the best one, because there are numerous attitudes regarding the degree
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of risk that is acceptable. |