2. Risk of forced liquidation
Forced liquidation means that option trading adopts a same-day zero-liability settlement system similar to futures trading. After the daily close, a margin will be calculated and collected from the option obligor based on the contract settlement price.
If the obligated party has insufficient available funds in its margin account, it will be required to pay additional margin. If it fails to pay the additional margin within the prescribed time and fails to close the position on its own, its position will be forcibly closed.
3. Contract expiration risk
Options trading has a contract validity period, and different option contracts have different expiration dates. If the right holder does not exercise the option on the expiration date, the contract will automatically become invalid and no longer have any value. The investor’s option contract account will no longer display the expired contract position.
4. Risk of Failure to Exercise Options
The risk of failed exercise means that if there is no sufficient option premium in the account after the investor proposes to exercise the option, it will be judged as a failed exercise and the investor will not be able to exercise the rights granted by the option contract.
What are the similarities and differences between options trading and stock trading?
A. Similarities between options and stocks
- Both are financial investment products;
- They all start trading after making certain judgments about the future stock price trend of the target stock;
B. Differences between options and stocks
Different transaction objects
- Options are the right to buy or sell one or more stocks within a certain period of time in the future;
- Stocks are actual ownership of shares in a company;
Different trading directions
- Options are two-way transactions, which can be bought first and then sold, or sold first and then bought. Investors can be both buyers and sellers.
- In stock trading, investors only act as buyers and purchase stocks from the stock issuing company in a one-way manner;
Different trading methods
- There are two types of fees involved in option trading: the upfront option fee and the contract drafting fee paid later when the option is exercised;
- Stock transactions are one-time full-amount transactions, which means the full cost of actually purchasing the stock;
