Plenty of horror stories out there ... a good friend bought into Optioneer (Options trading scheme). He lost 70k during the S&P meltdown two years ago.
Perfect example of options getting a 'bad rap'. I lost a lot more that $70K in the S&P meltdown to years ago. And it would have been *worse* if I didn't use options with that investment.
Options (calls and puts), can be bought or sold (go long or short). It isn't options that are risky, it is what you do with them.
I could just as well say that that investing in stocks is bad - a good friend shorted the tech market in the late 90's. Would that really make stock investing bad?
Buy a put and you pay to reduce your risk for the stock. Where is the the horror story there?
Sell a covered call and you trade some of the *potential* upside of that stock for some $ today. Where is the the horror story there?
"... buying a put is just a temporary substitute for making a freakin' decision.
"If you choose not to decide, you still have made a choice..."
Not the case at all many times.
If an announcement is coming up, I can't 'know' if I should sell or not. The market response may be positive (whew, news was not as bad as feared, and they threw in some unknown good news too!), or negative (arghhhh, news was worse than feared!), or pretty flat (ho-hum, news is about what was already factored in the stock price).
In that case, buying a put could be an
active decision to wait out the announcement. One could certainly say that they think the price of the put is worth the chance that the news is OK, and the stock will rise more than the cost of the put. Obviously, the put sellers think otherwise, but that is what makes a market. Another decision would be to sell (take a tax hit), and then buy back (or not, but probably creating a wash sale if you do) after the announcement. They could both be active decisions.
In the OP case, I think not selling any might be the 'decision by failure to decide' mode.
In our mythical fantasy world for simplifying the tax code, I moving toward ERD's camp lets get rid of cap gains tax. It is so complicated and the record keeping gets toward the absurd.
I probably posted on this last year, but a friend of mine decided to take the effort to dot every 'i' and cross every 't' on the option trading he was doing (some straddles involved, sometimes just covered calls). Short story, after many hours, many transfers back and forth to the 'experts' at the IRS, he could not get a straight answer to even the *simplest* of his questions. He ended up 'winging it', but trying his best to make sure he was paying at least the correct amount.
The broker does not even report option trades to the IRS. Sumpin' tells me a lot of people are avoiding this tax, and the ones that try to follow the complex rules really look like 2x suckers, once for bothering with all these rules, and twice for paying for the 'privilege'.
-ERD50