When an options strategy fails, many write the whole 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, we should learn from them. This white paper delves into three common missteps that have plagued some options strategies in the past:
- Excessive Leverage
- Lack of Liquidity
- Inadequate Risk Controls
Marc Odo, , CFA®, CAIA®, CIPM®, CFP®, Client Portfolio Manager, examines each of these and how they may contribute to the failing of an options-based strategy. These are important elements to question in due diligence meetings when considering options-based strategies.