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What Else Ya Got

2 Standard Deviation Moves

What Else Ya Got

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Naked options are thought to have undefined risk. However, we know that an underlying can only go to zero so naked puts technically have a max loss. Since underlyings can go up indefinitely, do naked calls really have a max loss? Today, Tom Sosnoff and Tony Battista take a look at what this undefined risk really means. Using a 2 standard deviation move, they would expect the underlying to close outside of those strikes 5% of the time. However after looking at over 6,000 occurrences, they find that the SPX actually only moves outside of those strikes .95% of the time. For this reason, we can put a lot of context around our "max loss" when trading naked calls!

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