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Could I ever lose more than I put in when trading options?

I'm interested in trading options through my brokerage. I had a few questions regarding the information I've read from this site. If I decide to purchase a call option on company xyz and the trade went south, I would be limited in my loss so that what ever amount of money I paid (premium plus commission), would be the loss, is that correct? At any point in time, would my loss be greater then the money paid?

Career / Compensation, Investing
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January 2017

I am going to start out with a word of caution. Option trading can be very dangerous and volatile. You need to know what direction the underlying asset would move in and when it will move in that direction. You also need to know how much the asset would move in that direction. The value of the option also moves based on the volatility in the market. Unlike investing in stocks, where you have unlimited time to recover your losses, in option investing, time is against you and every minute that passes by, you are losing value if the asset does not move in the direction of your trade.So please be very careful trading options. I would suggest starting out with paper trading so you understand how option trades behave versus stock trading.

Now back to your question, if you are only buying calls and puts to open, then you are correct, you cannot lose more than the funds invested in the trade plus commission. But if you are writing call and puts without owning the underlying stock ( also called writing naked call & puts ), then you can lose a lot more than the initial investment in the trade. Good news is that your broker will probably not let you do naked calls and puts unless you have a considerable amount of margin available in your account.

Hope this helps and good luck with your trading!

January 2017
January 2017
January 2017
January 2017