Risk Disclosure

Options involve significant financial risk and are not suitable for every investor. The calculator and articles provide educational information; they do not assess individual circumstances or recommend transactions.

Option losses

A purchased option can lose its entire premium. A short option can lose substantially more than the premium received: an uncovered call has no fixed maximum loss, and a short put can lose its strike value less the premium if the underlying falls to zero.

A spread’s expiration loss limit depends on the specified contracts and quantities. Closing a protective leg changes that exposure. Shares retained after protection expires can create further losses.

Exercise and account requirements

American-style options can be exercised before expiration. Assignment may require a share purchase or delivery while other option legs remain open. Exercise decisions near a strike can leave an unexpected share position after expiration.

Broker margin requirements can change, and a deficiency may lead to liquidation before the intended exit. The funds needed to carry assigned shares can be much greater than the spread’s maximum expiration loss.

Prices and execution

Closing prices depend on available bids, offers and size. Wide spreads, fast markets and unfilled orders can change the realized result. Trading multi-leg positions separately leaves exposure between fills. Commissions, fees, financing, stock borrowing and taxes also affect the outcome.

Model limitations

Theoretical valuations depend on assumptions about volatility, dividends, interest rates and exercise. Actual markets can change these conditions abruptly. An expiration payoff describes results at specified prices, while the probability of those prices and the ability to trade at a model value require separate assessment.

Before trading, review the applicable contract specifications, broker requirements and current standardized-options disclosure document.