- Option trading can carry substantial risk of loss.
- Risk of losing your entire investment in a short period of time for long options
- Writers of Naked Calls are faced with unlimited losses if the underlying stock rises
- Writers of Naked Puts are faced with losses limited to strike – premium collected if the underlying stock drops to 0
- Writers of naked positions are faced with margin risks if the position moves against the intended direction
- No privileges of ownership
- Standardized units of trading and expiration cycles
Because of their flexibility, options can provide investors with a chance to realize almost any strategic goal, from managing risk to enhancing leverage.
Option trading can also carry a substantial risk of loss. Before investing in options, it's important to understand the strategies you can use to limit this risk.
Holders should also realize that options pay no interest or dividends, have no voting rights, and no privileges of ownership.
They are available from TD Direct Investing on a wide variety of investment vehicles, including stocks, and market indices.
While many factors have contributed to the success of exchange-traded options in North America, standardization of key option features (including exercise prices, trading cycles, and expiration dates) is one of the most important as it has contributed to the viability of a secondary options market.
For equity options, a 100 share (board lot) contract size generally applies to all markets except in the event of a stock split or corporate reorganization (in which case the contracts are altered to adjust for the split).
For index options, which are cash-settled, the contract size is determined by multiplying the premium by an index multiplier, which is usually $100.
As for standard expirations, it's important to understand that each option class (which are options listed on the same underlying interest) has several different option series, which are identified as calls or puts by their symbol, expiration date, and strike price.