Disadvantages of Options

The disadvantages of options are as follows:

1. Costly: The cost of trading options including both commissions and the bid is higher on a percentage basis than trading the underlying stock.

2. Complex Process: Understanding options trading requires great observation and maintenance.

3. Lower Liquidity: With the wide range of prices available, some will suffer from very low liquidity making trading difficult.

4. High Risk: Options, like any financial product, obey the risk/reward ratio, the higher the potential reward the higher the potential risk, and vice versa.

5. Time Decay: Options Trading is time-sensitive in nature and leads to the result that most options trading expire worthlessly. This is only applied to the traders that purchase options.

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