No. of Recommendations: 0
Hi XfatOx,

The downside is simple: the possibility of being forced to pay more for the stock than it is worth. Maybe a really, really simple example will be able to express this.

But this is the same risk you take when you buy the stock outright.

This returns annualizes out to 6.6%. This is definitely not worth taking the risk. Naj can check my math. Compounding the returns is the only way to make sense of the example.

So, I think I see what you are saying. The return from the option must be worth as much or more than your expected return on the underlying security. I agree with this.

It is my opinion, Jeff also agrees with this and considered it a given. However, I now see your point that this would have been an added issue to discuss.

Am I following your logic now?

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