Not good risk management advice… The Economist

The Economist points out that option trading is soaring due to an increase of retail customers trading them:

But, there is this:

”There are two sides to a market, of course. The specialist traders and hedge funds on the other side of these trades are content to take the premiums from options buyers and to manage the risks of occasional big losses should the punters’ bets pay off. One hedge for a call option is simply to own the stock, which is why long-only equity funds are increasingly being drawn into the market to juice up their returns. “A lot depends on your book,” says a seasoned options trader. If you’ve taken in a lot of put-option premiums, you might write some call options to even things out. Or you could balance the risk from an expensive-looking option—with, say, a round-number strike price of the kind favoured by retail investors—using a cheaper-looking option with a nearby strike price.”

Yikes!