Risks Associated With Option Trading – Boca Raton, Florida Investment Abuse FINRA Arbitration and Litigation Attorney

What are some of the risks associated with trading options?

Options like other securities carry no guarantees, and investors should be aware that it is possible to lose all of your initial investment, and sometimes more. For example:

Option holders risk the entire amount of the premium paid to purchase the option. If a holder’s option expires “out-of-the-money” the entire premium will be lost.

Option writers may carry an even higher level of risk since certain types of options contracts can expose writers to unlimited potential losses.

Other risks associated with trading options include:

Market Risk – Extreme market volatility near an expiration date could cause price changes that result in the option expiring worthless.

Underlying Asset Risk – Since options derive their value from an underlying asset, which may be a stock or securities index, any risk factors that impact the price of the underlying asset will also indirectly impact the price and value of the option.

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