Options Trading Strategies

Have you lost money by investing in an options trading strategy recommended by your broker? If so, you may have been told something to the effect that “Trading provides downside protection or serves as a hedge.”  But the truth is that you may be entitled to compensation for your losses—if they were more of a result of unsuitable options trading than the investments themselves.

Options trading has increased in popularity, with the rise of customers seeking strategies that provide downside protection, hedges or income. But options trading is a risky line of derivatives investment. That’s because an option is the ability to buy or sell a certain security at a fixed price, and the options’ value is intrinsically dependent upon the value of another asset (i.e., the asset you may buy or sell). But because options trading is such a risky, complicated type of investing, FINRA has limited the brokers’ ability to sell these investments to specific investors who understand and could afford the risk.

Brokers must approve a trade every time they accept an options order. The rules require that brokers can only approve options trading for experienced, knowledgeable investors; the brokers also must examine the customers’ age; they must verify the client’s financial situation (e.g., a customer’s ability to cover a loss or their potential need for credit). They must know the client’s investment objectives.

At the same time, brokers need to approve customers for specific types of options trading. Customers shouldn’t be automatically approved for any options trade, but instead have different requirements for purchases of puts and calls; covered call writing, uncovered call writing, and options spread transactions. And finally, these decisions can’t be ad hoc: Brokers should have procedures and policies in place to grant these approvals.

And of course, there are other requirements for brokers offering options trading, such as that they must maintain accurate records, and supervisors must periodically review records and accounts.

Thus, if your losses in an options trading group are due to the broker’s failure to fulfill FINRA’s requirements, you could be entitled to compensation for your losses.

If you’ve lost money trading options with brokers who are engaging in misrepresentation or other wrongdoing, contact the Silver Law Group. Silver Law is a nationally recognized team of attorneys who 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.