You are at a party and some MBA student from a fellow univer

You are at a party and some MBA student from a fellow university are talking about a recent lecture and are all fired up about options saying, \"This is so easy -- a no lose proposition! We\'ll all be millionaires by Christmas!\" Do you agree with them or disagree with them -- Why? (Or do you just wonder why you are at a party where they are talking about this type of stuff?)

Options are a great way to take a position (buy or sell ) in a stock without purchasing it. One can enter an option to buy stock (call option) at a future date at a specified price or enter an option to sell (put option) a stock at a specified price at a future date. If the stock has risen one can use the option to buy stock at a lower price and thus benefit. Similarily if the stock price has fallen, one can exercise put option to sell at a higher price, thus benefiting.

Using call and put at the same time or another combination of options , one can create riskless position where there is no chance of a loss. However the students are forgetting one thing, \"PREMIUM\" for the options. If the stock price do not move much, then the options expire worthless and one loses the premium paid for the options. Therefore options are in no way a zero loss propositions and have risk and return like other financial derivatives.

$You are at a party and some MBA student from a fellow university are talking about a recent lecture and are all fired up about options saying, \$

You are at a party and some MBA student from a fellow univer

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