Frequently Asked Questions

Are there unlimited risks for shorting options?

Theoretically yes since in theory stock price could fall to zero or rise without cap. However in reality this may not be applicable because the assumption is investors do not cut losses. In fact options is not as danger as described if investors manage their risks and leverage properly.

Back to Top

There are high risks associated with writing stock options since buyers can exercise options at any time before expiry?

The percentage of early exercising stock options is very low. Option buyer will give up the time value part in option value if he opts to exercise early. He can only get the intrinsic value by doing so. Therefore option buyer will close out the position in the market most of the time. However if the underlying stock ex-dividend earlier than expected, then option buyer may choose to exercise the call option early in order to be entitled with the dividend. Investor should be aware of the relationship between ex-dividend date and option.

Back to Top