Examining the risks of call and put options shows that this type of security can result in significant losses, as its value can easily drop all the way to zero. This is only one of the risks you’ll find when you research this type of security.
If you’ve lost money because your financial advisor recommended call and put options when you were looking for a low-risk investment, you could have grounds for a claim. An Ohio unsuitability claims lawyer can help you seek remedies from your advisor and explain why these securities can be risky.
What Are Call and Put Options?
Before you examine the risks of call and put options, it’s important to understand exactly what they are. Call and put options are financial derivatives that allow investors to buy or sell an underlying asset at a predetermined price within a specific period of time.
A call option gives the investor the right to buy the asset, which is usually done when the investor expects the asset’s price to rise. On the other hand, a put option allows the investor to sell the asset, usually when they expect its value to decline.
These options are used for investment strategies that involve hedging, speculation, or leveraging. While call and put options can be extremely lucrative, inexperienced, risk-averse investors can suffer serious financial losses from investing in them.
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The Risks of Call and Put Options
It’s important to examine the risks of call and put options before investing in them. One aspect of this type of investment that makes it risky is the element of time sensitivity. Since these investments can “expire,” there’s a chance that the investor can suffer a total loss.
Since changes in the market can happen unexpectedly, investors need to be very precise about their timing when selling and buying these derivatives. With a limited amount of time to achieve a favorable outcome, this type of investment strategy can lead to serious losses when used by an inexperienced financial advisor..
Leverage Is Another Risk Factor When Investing in Call and Put Options
It’s important to note that investing in call and put options with leverage is another reason why this type of investment is risky. Leverage allows you to earn returns on options with less than it would cost to purchase the stock outright. While this can allow you to multiply your money quickly, it can also lead to catastrophic losses.
If you’ve lost a significant amount of money because a financial advisor or brokerage firm sold you on investing in call and put options without explaining their risks, they could be held liable for your losses. An experienced investment fraud lawyer can review your case and determine if you’re eligible to take legal action.
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Options Prices Can Be Influenced by Unpredictable Factors
Trading options can be extremely unpredictable, making it highly inadvisable for risk-averse investors who are looking for steady and reliable investment strategies. Since the prices of options are tied to factors that can change course unexpectedly, it makes investing in these derivatives risky.
When you sign a contract with a financial advisor, they agree to uphold a fiduciary duty and invest your money in a way that benefits you and is aligned with your goals. If your advisor knew that you didn’t want to take risks with your money but invested in options anyway, they should be held responsible for their misconduct.
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How an Attorney Can Help You Recover From a Call and Put Options Loss
If you’ve lost money on call and put options because of a financial advisor’s unsuitable recommendation, a legal representative can help you seek compensation and justice. A broker misconduct lawyer can investigate your situation, gather evidence, and file a legal claim on your behalf.
In most cases, your attorney will file a Financial Industry Regulatory Authority (FINRA) arbitration claim. Then, they will represent you during the arbitration process.
If your arbitration case is successful, you may recover all or a part of the losses you’ve incurred. A skilled lawyer will assemble compelling evidence and legal arguments to present at arbitration, increasing your chances of getting a favorable outcome.
Schedule a Free Consultation With an Experienced Attorney Today
Examining the risks of call and put options shows that they aren’t a suitable investment recommendation for someone looking for a safe and reliable investment. Unfortunately, financial advisors sometimes go against their clients’ best interests, leading to significant losses.
If this has happened to you, the team at Meyer Wilson is here for you. Our firm has 75+ years of experience taking on powerful brokerage firms and empowering investors just like you. We’ve won over $350 million for our clients, and we’re eager to get the settlement you’re owed. Contact us today to schedule a free consultation and get started on your case.
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