Trading options involves unique risks and
is not suitable for all investors.
Spreads, condors, butterflies, straddles, and other complex, multiple-leg
option strategies can entail substantial
transaction costs, including multiple
commissions, which may impact any
potential return. These are advanced option strategies and often involve greater
risk, and more complex risk, than basic
options trades. Be aware that assignment
on short option strategies discussed in
this article could lead to unwanted long
or short positions on the underlying
Maximum potential reward for a long
put is limited by the amount that the
underlying stock can fall. Should the long
put position expire worthless, the entire
cost of the put position would be lost.
When trading short option strategies,
there is a risk in getting assigned early
on the options sold, even if they go in the
money by $0.01, obligating you to deliver
shares you don’t own (in the case of a
short call) or purchase shares (in the case
of a short put).
The risk of loss on an uncovered
short call option position is potentially
unlimited since there is no limit to the
price increase of the underlying security.
Option writing as an investment strategy
is absolutely inappropriate for anyone
who does not fully understand the nature
and extent of the risks involved.
The short naked put and cash-secured
put strategies include a high risk of purchasing the corresponding stock at the
strike price when the market price of the
stock will likely be lower.
Short naked option strategies involve
the highest amount of risk and are only
appropriate for traders with the highest
A covered call strategy can limit the
upside potential of the underlying stock
position, as the stock would likely be
called away in the event of a substantial
stock price increase. Additionally, any
downside protection provided to the
related stock position is limited to the
premium received. (Short options can
be assigned at any time up to expiration
regardless of the in-the-money amount.)
Futures trading is not suitable for all
investors as the risk of loss in trading
futures is substantial. Futures accounts
are not protected by the Securities
Investor Protection Corporation (SIPC).
Futures and futures options trading services provided by TD Ameritrade Futures
& Forex LLC. Trading privileges subject
to review and approval. Not all clients
Futures and futures options trading
is speculative, and is not suitable for
all investors. Please read the Risk
Disclosure for Futures and Options
prior to trading futures products
The information contained in this article is not intended to be investment advice and is for
illustrative purposes only. Be sure to understand all risks involved with each strategy,
including commission costs, before attempting to place any trade. Clients must consider all
relevant risk factors, including their own personal financial situations, before trading. Past
performance of a security or strategy does not guarantee future results or success.
Transaction costs (commissions and other fees) are important factors and should be
considered when evaluating any options trade. Options are not suitable for all investors as
the special risks inherent to options trading may expose investors to potentially rapid and
substantial losses. Options trading subject to TD Ameritrade review and approval. Please
read Characteristics and Risks of Standardized Options ( http://www.optionsclearing.com/
about/publications/character-risks.jsp) before investing in options.
It is not possible to invest directly in an index.