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 security.
The 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 of 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
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.)
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.
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 will qualify.
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
Options collar (risks of both sides already
disclosed individually): The collar position
involves the risks of both covered calls and
Options covered call: The 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 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
Options long put: Maximum potential
reward for a long put is limited by the amount
that the underlying stock can fall. This strategy provides only temporary protection from
a decline in the price of the corresponding
stock. Should the long put position expire
worthless, the entire cost of the put position
would be lost.