1. Why this page exists
Native Software and Technologies LLC (“Native Softwares”) publishes OptionsLab, an app that teaches options trading. Options involve substantial risk of loss and are not suitable for everyone. This page explains the main risks so you can make an informed decision before you use OptionsLab or trade options anywhere.
It is written in the spirit of the disclosures used across the industry, including those of the Options Clearing Corporation (OCC), but it is not exhaustive. OptionsLab is educational: we do not execute trades, hold funds or give personal investment advice. See our Disclaimer.
2. Options expire
Unlike shares, every option has an expiration date. If an option is not sold or exercised before then, it expires worthless and the buyer loses the entire premium paid. You can lose 100% of what you put into an options position.
The passage of time (“theta decay”) steadily erodes an option’s value, faster as expiration approaches. Time works against buyers and in favour of sellers.
3. Leverage cuts both ways
Options are leveraged. A small move in the underlying security can produce a large percentage gain or loss in the option. Because of that:
- Losses can exceed your initial outlay when you sell (write) options.
- Losses can arrive faster and larger than with owning the stock outright.
- Changes in implied volatility (“vega”) can move an option’s price even when the underlying does not.
- Margin requirements can rise sharply in stressed markets, forcing you to add funds or close positions at a bad time.
4. Defined and undefined risk
Strategies differ enormously in how much you can lose.
Defined-risk strategies
Long calls, long puts, vertical spreads and iron condors have a maximum loss known when you enter the trade: the premium paid, or the width of the spread minus the credit received. Capped is not small; you can still lose everything you committed.
Undefined-risk strategies
Naked calls, naked puts and short strangles carry very large or theoretically unlimited losses that can far exceed the initial margin. They are appropriate only for experienced traders with substantial capital and active risk management.
5. Other risks to know
- Liquidity risk. Wide bid-ask spreads or low volume can make it hard to enter or exit at a fair price.
- Early assignment. If you sell options you can be assigned before expiration and have to meet your obligation at an unfavourable time.
- Pin risk. When the underlying closes near the strike at expiration, you may not know whether you will be assigned until after the market closes.
- Gap risk. Overnight or weekend moves can produce large losses before you can react, especially on short positions.
- Volatility risk. Implied volatility can collapse or spike independently of price.
- Complexity. Multi-leg positions have risk profiles that are hard to monitor, particularly in fast markets.
- Platform and execution risk. Broker outages, order errors and data delays can all cost money. OptionsLab is not a broker and has no control over execution.
6. Past performance and examples
Past performance of any strategy, system or individual trade is not indicative of future results. The trade breakdowns and examples in OptionsLab describe conditions that already happened and may never repeat. Markets change; what worked before can stop working.
Hypothetical or simulated results have built-in limitations. They are prepared with hindsight, do not involve real money and do not reflect factors such as slippage, missing liquidity or the emotional pressure of a live position.
7. Community posts are not advice
Trades, ideas and polls shared by other OptionsLab members are their own opinions. We do not verify them, and they are not recommendations from us. Posting a trade in a feed says nothing about whether it is suitable for you.
8. Read the OCC Options Disclosure Document
Before trading options you should read Characteristics and Risks of Standardized Options, the official disclosure document published by the Options Clearing Corporation. It covers the mechanics and risks of listed options in depth, and your broker is required to give it to you before approving you for options trading.
9. Before you trade
OptionsLab is a place to learn. Before you put real money at risk:
- Talk to a licensed financial adviser or broker about whether options fit your situation.
- Be honest about your financial position, goals and tolerance for loss.
- Trade only with money you can afford to lose entirely.
- Understand any strategy fully, including its worst case, before using it live.
- Start small and keep a journal; that is what the app is for.
Questions about this disclosure: info@nativesoftwares.com.