Have You Lost Money In Covered Calls Options Strategy?

While some view “covered call” trading as one of the forms of options trading that have the least risk, the reality is that covered call options still come with some serious risk. A covered call strategy also requires extensive trading and allows brokers to change commissions or other fees making these strategies very expensive. And it’s important to understand that if your broker has convinced you to follow a covered calls options strategy that resulted in investment losses, the broker may be liable to compensate you for those losses.

Pros And Cons Of A Covered Call Options Trade

In a covered call options trade, Person A purchases stocks and then sells an option to sell the shares to Person B, once the shares have risen to a specified price. At that point, it’s up to Person B if they will purchase the shares or not.

If the shares increase in value, Person A will profit from the increased value in the shares, whether they sell them to Person B or not. However, it’s possible that Person A would have done better if they’d held the stock for a longer investment, when the agreement will force them to sell at that price.

On the other hand, covered call options can also result in a loss. Person A can’t sell the stock to anyone but Person B for the duration of the option. That means that if the value drops, they can’t sell the stock to anyone, to mitigate their loss. And depending on how badly the stock does, they could end up losing their entire investment.

Why You Might Be Entitled to Compensation For A Losses Of Covered Call Options Trade

If you’ve invested in a covered call because of a broker’s malfeasance, you may be able to get compensation for your losses.

Examples of reasons why you might be entitled to compensation include:

• Your broker misled you into believing a stock would be increasing in value
• Your broker failed to do enough research to make an informed recommendation to purchase the stock
• Your broker failed to ensure that you had enough financial resources to support a covered call options strategy or properly explain the strategy
• Your broker charged excessive fees or commissions

Churning With Options

Some brokers engage in an options trading strategy without fully explaining the costs of the strategy or engaging in trades just to generate a commission. If a broker engages in any type of trading to generate additional commissions, he may be engaging in churning, a type of fraud designed to maximize a broker’s commissions or fees.

If you’ve lost money from investments with brokers who encouraged you to invest in options trading, contact Silver Law Group. Silver Law’s team is nationally recognized for its ability to help clients recover their investment losses due to investment fraud and other brokers’ wrongdoing. Call now at 800-975-4353 to schedule a free consultation.