Part 12 Trading Master Class With Experts

Risk in Option Trading

Although options can be powerful, they carry risks:

1. For Option Buyers

Premium can become zero if market doesn’t move as expected.

Time decay works against buyers.

2. For Option Sellers

Potentially unlimited loss in selling naked calls or puts.

Require higher capital and margin.

3. Volatility Risk

Sudden drop in volatility can reduce premium even if direction is correct.

4. Liquidity Risk

Some strike prices have low liquidity, making entry/exit difficult.