Options trading can present some or all of the following material risks (not an exclusive list):
- Option sellers receive fixed compensation in exchange for accepting an obligation to buy or sell an underlying asset at a price that can fluctuate wildly.
- Securities price movement can make exercising options financially impractical and the options would expire worthless. This would result in the loss of the entire amount used to purchase the options.
- Options sold may be exercised at any time before expiration requiring the seller to purchase or sell underlying securities at an unfavorable price.
- Sellers of naked positions run margin risks if the value of the position drops (i.e. liquidation of positions by the broker).
- Sellers of call options can lose more money than a short seller of that stock on the same increase in the share price of the underlying stock.
- Call options can be exercised outside of market hours inhibiting remedies that can be taken by the seller of those options.
- Sellers of stock options may be obligated to buy or sell securities upon exercise even if a trading market is not available or they are unable to perform a closing transaction.
- The value of the underlying stock may unexpectedly increase or decline, leading to automatic exercises of options against the seller.
- Options markets have the right to halt trading of options, thus preventing investors from realizing value.