Options Trading Risks Explained: How to Avoid Losing More Than You Invest

Can you lose more than you invest in options trading? In Episode #05 of the Options Trading Podcast, we tackle one of the most important—and misunderstood—questions in the options world.

This episode breaks down the difference between defined risk and undefined risk strategies, the dangers of margin, and real-life examples of traders who lost big. We also cover time decay, volatility, and how to protect yourself with smart planning.

Resources mentioned include WeLoveOptions.com, Options Traders Alliance, and the Ultimate Watchlist.

Question for you: What’s your biggest concern when it comes to options risk—and how do you manage it?

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Key Takeaways

1. Defined risk strategies (like buying options and spreads) cap your losses upfront.
2. Undefined risk strategies (like naked calls and puts) can lead to losses beyond your initial investment.
3. Margin amplifies risk—even defined risk trades can result in margin calls and forced liquidation.
4. Time decay (theta) and volatility shifts (vega) can erode option value even if your trade direction is correct.
5. Risk management is essential—position sizing, stop losses, and avoiding over-leverage are key to survival.