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Myth #2: You should only buy low-priced (cheap) options to limit your risk.

Fact: It is a fact that purchasing options is a limited-risk strategy: The most the buyer of an option can lose is the amount paid for the premium plus commissions. Another way to look at this is that the buyer of an option has less capital at risk than the equivalent position in the underlying asset. What is more important to focus on than the inherent leverage in options is the probability of gain or loss. Low-priced options tend to be short-term and out-of-the-money. These are the options with the very highest probability of expiring worthless.


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