Options Basics: What's the risk?

Option investment offers investors the opportunities to get a high return with a small capital (click here to see an example). The risk is also very high. You may end up losing a significant amount if not all of your investment in a short period of time.

As every option has an expiry day, your option will be worthless if it is not likely that the option will be in the money. Those people who buy options that are far far out of the money and will expire in a very short period of time will most likely end up losing all their money in the option investment.

Certain type of options have unlimited risk. For example, if you sell a call option instead of buying a call option, you have the obligation to sell the shares of a stock at a specific day if the purchaser chooses to do so. If the price of underlying stock is sky high, you will end up losing a lot. Click to read more about the risk of writing naked call.

Posts that discuss options basics:
What's Stock Option?
Premium, Intrinsic Value and Time Value
Option Investment, How it Works?
Why Option Investment?
What's the risk?