Special Statement for Uncovered Option Writers. There are special risks associated with uncovered option writing, which expose the investor to potentially significant loss. Therefore, this type of strategy may not be suitable for all customers approved for options transactions.
Special Statement for Uncovered Option Writers. There are special risks associated with uncovered option writing, which expose the Client to potentially significant losses. Therefore, this type of strategy may not be suitable for all customers approved for options transactions. The potential loss of uncovered call option writing is unlimited. The writer of an uncovered call is in an extremely risky position and must understand that he/she may incur large losses if the value of the underlying instrument increases above the exercise price. As with writing uncovered calls, the risk of writing uncovered puts options is substantial. The writer of an uncovered put option bears a risk of loss if the value of the underlying instrument declines below the exercise price. Such loss could be substantial if there is a significant decline in the value of the underlying instrument. Uncovered options writing is thus suitable only for the knowledgeable Client who understands the risks, has the financial capacity and the willingness to incur potentially substantial losses and has sufficient liquid assets to meet applicable margin requirements. In this regard, if the value of the underlying instrument moves against an uncovered writer's options position, the Introducing Broker, and or Velox, may request significant additional margin payments and may liquidate stock or option positions in the Client's account with little or no prior notice in accordance with the Client's margin agreement. For combination and/or straddle writing, where the investor writes both a put and a call on the same underlying instrument, the potential risk is unlimited. If a secondary market in options were to become unavailable, investors could not engage in closing transactions, and an option writer would remain obligated until expiration or assignment. The writer of an American-style option is subject to being assigned an exercise at any time after he has written the option until the option expires. By contrast, the writer of a European-style option is subject to exercise assignment only during the exercise period. The undersigned does hereby understand that this special statement for uncovered option writers is not intended to enumerate all the risks entailed in writing uncovered options.
