What is an Option?
Options (stock options, call options, put options) are contracts between two parties. A stock option buyer purchases the right to buy or sell shares of an underlying stock at a certain price, within a defined time frame from the seller of that option. There are two basic types of options: Call Options (calls) and Put Options (puts). Call options provide the purchaser of the call the right to buy the underlying stock. The purchaser of a put provides the purchaser with the right to sell the underlying stock. Every option, call option or put option, has a strike price, which is the pre-determined price that the purchaser of the option can buy or sell the stock. The premium is the amount that the purchaser of the option pays to the seller in exchange for the future right to buy or sell the stock. The proximity of the strike price to the underlying stock and the amount of time before the option expires largely determines the premium value. Every stock option has a pre-determined expiration date. Every option contract accounts for 100 shares of stock. Options can be used for a variety of purposes. Investors often use options as a hedge on potential price movement, or to speculate on the direction of an underlying stock.
Option Risk for Calls and Puts
Stock Option Risk, Put Option Risk, Call Option Risk
Options are complicated investment products. Financial Advisors are required to make significant industry mandated risk disclosures before an investor can invest in options. Option trading and investing should be limited to those with significant investment experience and sophistication. Unfortunately, financial advisors often recommend options trading to investors that do not understand the intricacies of options. Financial advisors often fail to orally disclose important risk factors. Most important, sellers of investment options are subject to unlimited risk if the underlying stock moves adversely to the strike price that the options seller sold. Financial advisors also often fail to tell investors that have sold calls against an underlying stock that the investor owns that the call will not protect the investor from downside risk in that stock.
Legal Help for Victims of Options Securities Fraud
If your financial advisor has invested your life savings in stock options (call options or put options) and you have sustained significant losses, and your advisor never explained the high risk involved with options, you may be entitled to compensation. Gilman Law LLP is a leading securities fraud law firm and has years of experience dealing with securities fraud involving options and is here to help you recover damages on your options claims. For a FREE evaluation of your case, please complete our Free Consultation Form Online, or if you need to speak to an attorney right away CALL TOLL FREE (888) 252-0048 today.