8. What are the risks of trading options
Option trading is for experienced investors and it is important to be aware of the risk before you start trading Options. Some of the risks are:
- Loss of entire Princpal - It is possible to lose the entire principal invested and potentially more.
- Premum paid for nothing - If the stock price does not move as desired by the Option buyer, then the contract will lapse and the premium will be lost for nothing in return.
- Timing - Apart from predicting when a stock may go down or up, it is usually a question of within what time period. You may correctly predict that the stock price will move up, but this may happen after your contract expires . As such, you will lose your premium.