Have you suffered investment losses from an options trading strategy recommended by your stockbroker or investment advisor, or did your broker conduct options trading on your account without your knowledge or approval? You may have a legal claim to recover compensation for your losses that your broker or advisor caused due to their negligence or misconduct. However, pursuing an options trading loss claim can involve complex factual and legal issues.
You need experienced legal counsel who can prepare and present a compelling case on your behalf. Contact Erez Law PLLC today for an initial case evaluation with our stock loss attorneys to learn whether you may have a claim for compensation against the brokerage firm that employed your broker or advisor.
Understanding Options Trading
Options trading involves the buying and selling of options contracts. An options contract gives the holder of the contract the right, but not the obligation, to buy or sell a designated security at a specific price within a specified timeframe. A party that purchases an options contract pays a premium to the seller of the contract. The seller must sell a security to or buy a security from the contract holder when they exercise their option.
Options contracts come in two forms: calls and puts. A call option gives the contract holder the right to buy a security from the contract’s seller at a specific price on or before the expiration date of the option. A put option gives the contract holder the right to sell a security at a particular price on or before the expiration date.
Options trading allows investors to earn profits by selling options contracts. However, the success of an options trading strategy requires correctly speculating on how the price of the security underlying the options contract will move. Predicting the incorrect outcome may cause the seller of an option contract to lose more money than they earned from the premium for selling the contract.
The risks of options trading and the complexities of many strategies lead many investors to suffer serious financial losses.
The Role of an Options Loss Attorney
Sometimes, an investor may suffer options losses when they undertake an options trading strategy due to the negligent advice or misconduct of their stockbroker or investment advisor. In those cases, investors may have legal claims against brokerage firms to recover the losses they sustained.
A stock losses lawyer can play a critical role in helping investors pursue their lost money from brokerage firms and financial advisors due to their negligence, misconduct, or securities fraud.
A lawyer’s role in an options loss claim includes:
- Investigating allegations of broker misconduct to obtain evidence of negligence, unethical practices, or violations of securities laws, such as misadvising a client on the risks of options trading, making recommendations for unsuitable investments in options, or engaging in options trading without the investor’s permission
- Documenting the client’s significant losses from options trading
- Working with financial experts to build a compelling case, including explaining a broker’s or advisor’s professional negligence and calculating losses based on stock market data
- Pursuing legal action through securities arbitration to recover losses for the investor
At Erez Law PLLC, we work on a contingency fee basis, so you don’t have to pay for our legal services unless and until we recover compensation on your behalf. Call us today to learn more about your legal options to recover your losses during a free consultation with a securities fraud lawyer.
Common Causes of Options Trading Losses
Common causes of options trading losses attributable to broker or investment advisor misconduct or negligence include:
- Unauthorized trading in options on a client’s account
- Making an options trading recommendation that is not suitable for a client’s investment goals or risk tolerance
- Misrepresenting or failing to disclose the risks of recommended options trading strategies
Our securities fraud attorneys have extensive experience handling cases of this nature. We have successfully resolved over 2,000 cases. Call us today for a free consultation to learn more about the legal process to pursue compensation for your financial losses.
Types of Options Strategies
Stockbrokers and investment advisors may recommend various types of options strategies to clients. Some of the most common examples of options strategies include:
- Covered Call Options – In a covered call strategy, an investor who owns shares of stock sells call options on that stock. Selling a call option gives the buyer the right (but not the obligation) to buy the stock at a specific price (strike price) on or before a particular date. The investor receives a premium from the buyer for selling the option, while protecting themselves from downside risk, as they already own the stock and can sell it to the buyer if the option is exercised. However, the investor can generate additional return if the stock price stays below the strike price, as the buyer will have no financial motivation to exercise their option.
- Yield Enhancement Options – In a yield enhancement strategy, an investor uses complex options trading strategies, such as iron condors, spreads, or strangles, which, in theory, provide modest additional returns for an investor’s portfolio with a limited downside risk.
- Naked/Uncovered Options Trading – In “naked” or uncovered options trading, an investor sells call or put options on stocks without owning those shares. Uncovered call strategies anticipate that a stock’s price will not exceed the strike price before the call’s expiration. Uncovered put strategies anticipate that the stock’s price will not fall below the strike price before the put’s expiration date. However, because investors do not own the underlying assets in uncovered options trading, these strategies involve significant risk as the investor must pay to acquire the asset if they incorrectly guess the stock’s movement and the buyer exercises their option.
How to Choose the Right Investment Fraud Lawyer
If you’ve sustained investment losses because a registered investment advisor negligently or intentionally misled you into an unsuitable options strategy, you may be able to pursue legal action to recover compensation for the losses you’ve experienced. An experienced stock losses lawyer can investigate if your broker or advisor used options as part of your investment portfolio in these complex financial products without considering whether they aligned with your best interests and investment objectives.
Choose a stock market loss lawyer with extensive experience pursuing options-related claims, as the lawyer will understand the complexities of options trading strategies. You should also choose a lawyer with an established track record in FINRA arbitration.
The attorneys at Erez Law PLLC are recognized nationally for their role in protecting investors from broker fraud and misconduct. We have over 35 years of experience representing investors and have successfully recovered over $300 million for defrauded investors, including multiple awards for punitive damages. We have a deep understanding of FINRA arbitration procedures and extensive experience in this forum.
When you’ve suffered losses due to a stockbroker’s or investment advisor’s misconduct, you may have the right to seek financial compensation. Contact Erez Law PLLC today for a free initial consultation with an option loss attorney to discuss your legal options.