Retail investor: I only sell puts on $5-10 stocks. That way if I'm assigned, it's only a few hundred bucks.


Me: Why are those stocks $5?
Retail investor: ...they're just cheap? More affordable to trade.
Me: Stocks aren't cheap because they're low priced. They're low priced because the market thinks they're going nowhere... or to zero.
Retail investor: But a $500 stock feels so much more expensive.
Me: Price per share means NOTHING. A $500 stock below its fair value is cheap is EPS growth is solid. A $5 stock with no earnings is expensive at any price. You're sizing your risk by share price instead of by compellingness of the trade..
Retail investor: So my "affordable" assignments are actually the most dangerous ones?
Me: A $5 company can go to zero. $Q can't. I'd rather sell one put on something elite than ten puts on garbage....
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