Part 1 Candle Stick Pattern

Risks and Rewards in Option Trading

Option trading offers tremendous potential—but it comes with unique risks. Understanding these is essential:

Limited Time: Options lose value as expiry nears due to time decay (Theta).

Volatility Risk: Sudden drops in volatility can reduce option prices unexpectedly.

Liquidity Risk: Some options have low trading volume, making it difficult to enter or exit positions.

Leverage Effect: Options amplify both gains and losses.

Margin Requirements (for Sellers): Option writers must maintain sufficient margin, as potential losses can be large.