Comment on Option buying: The riskiest trade out there

Nithin,

I am not able to follow your logic for not allowing buying far OTM options as part of a hedged strategy through a basket order. You have said that there is no guarantee that the short order will go through. If the Buy order succeeds then it is extremely unlikely that the short order (which would have far more OI) will fail. In the unlikely event that the short order fails, then usually any client placing the basket order would want that his long position in the far OTM option be closed at the earliest. And that can be default way that basket orders behave, i.e., in a basket order of a spread strategy:
– Buy of far OTM option is executed first to take advantage of reduced margin requirements
– Sell leg of the spread is executed second
– If Sell fails then the open long position is closed automatically by the system

Ofcourse there is no guarantee that the open long position will be closed. Or that the position is closed at some loss. But I think those are risks that are always assumed when taking any long position.

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