Key Facts on Options Trading
The average trading volume for options has surpassed 50 million contracts per day, according to Market Chameleon. Industry experts, including Motley Fool CEO Tom Gardner, have issued warnings to new investors regarding the risks associated with options trading, particularly for those without adequate knowledge.
Options trading can lead to significant losses, as traders may be liable for large sums if market conditions shift unfavorably. For instance, holding a “naked call” strategy can result in a loss of $3,600 if a stock’s price rises unexpectedly, and a put option can impose a liability of $48,000 if the stock’s price drops significantly.
Experts advise that seasoned investors typically use options as hedges rather than speculative investments, emphasizing the need for caution among novice traders.
