When an options strategy fails, many write the entire category off as risky and dangerous investments. This is unfortunate because options strategies may help investors meet various investing objectives. It is not the options themselves that are risky. It is how they are used that matters.
There are lessons to be learned from the mistakes of others, and rather than discard these experiences entirely, that we delve into that have plagued some options strategies in the past:
- Excessive Leverage
- Lack of Liquidity
- Inadequate Risk Controls
Marc Odo, CFA®, FRM, CAIA, CIPM, CFP®, Client Portfolio Manager, examines each of these and how they may contribute to the failing of an options-based strategy and recommends due diligence considerations.