What are the biggest risks when trading options?

esides the potential for the option to expire worthless, key risks include:

  • Time decay eroding value
  • Rapid changes in implied volatility impacting price
  • Potentially unlimited risk if selling “naked” (uncovered) options.

Using spreads helps manage some of these risks by defining your maximum potential loss. Remember, investing involves risk, and past performance is not indicative of future results.