Options are a financial investment instrument that has gained popularity in recent years. CNBC reports that a record 39 million options contracts were traded each day on average in a recent year. Retail investors, as opposed to institutional investors, accounted for 25 percent of this options trading activity.
While large brokers generate millions of dollars in revenue from the options trading craze, some small-time investors find themselves with massive options trading losses. In some instances, their broker may have made these risky investments against their wishes or without performing necessary due diligence.
If you suffered significant losses trading options due to your broker’s negligence or wrongdoing, the options attorneys at Erez Law, PLLC can help you demand compensation for the financial harm you’ve suffered. Our firm represents options traders who were misled or misinformed by their broker about the risks associated with options trading. Our stock options loss attorneys have successfully tried over 50 cases to award before Financial Industry Regulatory Authority arbitrators, have recovered more than $175 million for investors to date, and have a 99 percent success rate. Let us use our considerable knowledge and experience to help you.
Contact Erez Law, PLLC today for a free consultation with our securities arbitration lawyers about your options case.
What Are Options?
Options are sophisticated financial instruments based on the value of an underlying security, such as a stock. An option offers an investor the opportunity (or option, hence the name) to buy or sell an asset at a certain price by a specific date. An investor is not required to buy or sell the asset.
A call option allows the investor to buy the asset. A put option allows the investor to sell the asset. A call option becomes more valuable as the underlying asset price rises, whereas a put option becomes more valuable as the asset price falls.
Option holders are charged a fee (premium) for each options contract, which typically represents 100 shares of the asset. If the price of the underlying asset moves in an unfavorable direction, the option holder can allow the option to expire and lose their premium. However, if the price moves in a direction that makes the option more valuable, the holder can exercise the option.
What Are Options Strategies?
Options strategies are investment tactics that investors can use to maximize their potential upside and minimize their risk. Options strategies range from simple to highly complex. The more complex options strategies can bring high rewards but also carry high risks.
What Is Required of Brokerage Firms to Perform Options Trading?
The Financial Industry Regulatory Authority (FINRA) is a government-authorized not-for-profit organization that oversees all investment brokers and dealers in the United States. It currently oversees 624,000 brokers across the country.
FINRA issues regulations to maintain fair financial markets and protect investors, including options traders. Under FINRA rules, brokers are supposed to:
- Perform due diligence on the customer to make sure that it is appropriate for them to engage in options trading
- Obtain and consider detailed customer information, including the customer’s knowledge, investment experience, age, financial situation, and investment objectives, before approving an account for options trading
- Approve a customer to perform options trading in advance of placing any options orders, regardless of whether the customer is using a self-directed platform or working through a broker
- Approve each type of options trading strategy that a customer can utilize
- If necessary, require a minimum dollar balance in the customer’s account to perform options trading
- If necessary, place dollar limitations on the customer’s options transactions
- Provide the customer with the Characteristics and Risks of Standardized Options disclosure document
- Review the limits and types of credit available to options traders
- Have a reasonable basis to believe that an options strategy is suitable for the customer before recommending it
- Be subject to supervisory reviews for options accounts to ensure compatibility with the customer’s investment objectives
If a broker or brokerage firm violates FINRA rules, they may be subject to fines, suspensions, or even a ban from the brokerage industry in instances of egregious misconduct. In June 2021, FINRA fined the trading platform Robinhood approximately $70 million for “systemic supervisory failures,” including failure to exercise due diligence before approving customers to perform options trades. FINRA found that Robinhood approved “thousands of customers for options trading who either did not satisfy the firm’s eligibility criteria or whose accounts contained red flags indicating that options trading may not have been appropriate for them.”
What If I Lost a Lot of Money to Options Trading?
If you lost money while trading options, you may be able to recover your losses with help from an options attorney. Not all brokers follow the rules 100 percent of the time. If you lost money because your broker failed to follow FINRA regulations, you might be entitled to compensation for your losses.
For example, if the broker failed to perform due diligence before approving your account to execute certain options trades or misinformed you about the risks of options strategies, you may be able to hold them accountable for this negligence.
A stock options lawyer can represent you in a legal proceeding against the broker or their firm. Arbitration is one type of legal proceeding. It is an out-of-court dispute resolution process in which two parties – you and the broker – present your case before a neutral third party called an arbitrator. Aggrieved investors can file an arbitration claim directly through FINRA to seek compensation, or damages, from the negligent broker. A stock options loss lawyer can represent you in a FINRA arbitration. The FINRA arbitrator’s decision is typically final and binding, but in rare instances, a party may challenge it in court.
Consult with a Securities Arbitration Lawyer If You Have Lost Money because of a Stockbroker’s Negligence
If you lost money because of your broker’s negligence, a stock options loss attorney could help you pursue compensation for the financial harm you suffered. The securities arbitration lawyers at Erez Law, PLLC can represent you in a legal proceeding against the negligent broker and hold them accountable for their wrongdoing. Contact us today for a free consultation about your options case.