make or break time coming up..., page-5

Perhaps you should consider buying Lotto tickets with your funds? There aren't many shares where $10 worth gets you the chance at making $1m in a week... :-)

Of course you are right - it is always risk vs return. However, when the risk of business failure is ameliorated, it is mostly a one-off and immediate event. Let's call the pre-event trade "high risk" and the post-event "low risk". As a result of this event, suddenly the scope for a sudden downside move in the share price is reduced from a 100% loss to perhaps a mere 20%. At any time during your trade, a sudden-loss event could occur - whether it is a market move or a share-specific move and you may want to exit the trade. If you were to assume the chance of a sudden-loss event hangs at about 50:50, your maximum sudden-loss in a $10k trade is $10,000 in the high risk trade, but only $2000 in the low risk trade. So to make your high-risk trades average out, you need to get 100% gains on the ones that don't fail just to break even, but taking the low-risk strategy only requires you to make 20% gains on the successful trades.

Using this example, if you do the maths you find that for the same average financial outcome, you can afford to get into the lower-risk trade at a price 67% higher than for the high-risk trade. In my experience, you will almost always get the chance to get in before the price has risen that much.

That is the simple explanation as to why I'd go for the low-risk trade at a higher price... although there is probably even more mathematical weight that could be thrown at it if you look at the cost of volatility in sequential trades and also the relative chances of a "sudden-loss" event occurring at all in the high-risk vs low risk scenarios.