Part 6 Learn Institutional Trading

Risks & Disclosures: Essential Terms
a) Market Risk

Options move faster than stock prices; losses can be sudden.

b) Volatility Risk

Option prices are sensitive to market volatility (VIX). High volatility increases premium.

c) Time Decay (Theta)

Options lose value as expiry approaches — especially out-of-money options.

d) Liquidity Risk

Low-volume contracts may have difficulty in entering/exiting positions.

e) Assignment Risk for Sellers

Sellers can be assigned at any time on expiry day.

f) Slippage

Rapid price movements may cause orders to execute at worse prices.