Risk Disclosure & Risk Management

Last updated: August 31, 2026 · Educational content — not investment advice

1. Options Involve Substantial Risk

Trading options is speculative and carries a high level of risk. It is not suitable for every investor. You can lose some, all, or — with certain undefined-risk positions — more than your entire investment. Before trading options you should read the industry standardised disclosure, "Characteristics and Risks of Standardized Options" (the OCC Options Disclosure Document), and make sure you understand it.

• Options can expire worthless, resulting in a 100% loss of the premium paid.
• Selling (writing) options can expose you to large or theoretically unlimited losses.
• Prices can move sharply and gap around earnings, news, and market open — often against you.
• Assignment, early exercise, liquidity, and volatility changes can all work against a position.

2. Not a Recommendation — Educational Only

The signals, screens, scores, and example structures you see here illustrate how a defined-risk approach can be reasoned about. They are not a call to action. We do not know your financial situation, objectives, tax position, or risk tolerance, and nothing here is tailored to you. Consider seeking advice from a licensed financial professional before acting.

3. Position Sizing — Risk a Small Slice

The single most important habit in options trading is controlling how much you put at risk on any one idea. A common risk-management guideline is to cap the capital or maximum loss on a single position at a small percentage of your total portfolio.

This is an educational rule of thumb, not a promise of safety. Even small, well-sized positions can lose money, and a string of losses adds up. Choose a percentage that fits your own risk tolerance — and when in doubt, size smaller.

4. Prefer Defined-Risk Structures Over Naked Options

A defined-risk position is one where your worst-case loss is known and capped before you enter. A naked (uncovered) short option has no such cap and can produce losses far larger than the premium collected.

5. Cover Your Short Options

Whenever you sell an option, pair it with something that defines the risk. Don't leave a short leg naked. Practical ways to "take cover":

• Covered call: sell a call only against shares you already own, so you can deliver them if assigned.
• Cash-secured put: sell a put only if you hold enough cash to buy the shares if assigned — and would be willing to own them at that price.
• Vertical / credit spread: buy a further out-of-the-money option to cap the loss on the option you sold.
• Iron condor / defined-width structures: combine spreads so every short leg has a long leg protecting it.

6. Have a Plan Before You Enter

Decide your exit before you decide your entry. For every position, know in advance:

• Maximum loss in dollars, and confirm it fits your position-sizing rule.
• Profit target — where you will take gains rather than getting greedy.
• Stop / adjustment point — where you will close, roll, or hedge if the trade goes wrong.
• Time horizon and how expiration, earnings, or events affect the position.

7. Manage the Trade, Don't Marry It

Cut losers before they become account-threatening, and don't let a winner round-trip back to a loss. Rolling, closing early, or reducing size are all legitimate risk-management actions. Avoid "revenge trading" after a loss and avoid oversizing after a win. Discipline and consistency matter more than any single trade.

8. Understand Assignment, Expiration & Liquidity

• Short options can be assigned early, especially around dividends or when deep in the money.
• Options you forget to close can be auto-exercised at expiration, creating an unexpected stock position.
• Thinly traded options have wide bid/ask spreads — you may not be able to exit at a fair price.
• Multi-leg orders can partially fill, leaving you with unintended, undefined risk.

9. Diversify and Watch Correlation

Spreading risk across different names, sectors, and expirations reduces the chance that one event wipes out several positions at once. Be aware that many positions can move together in a broad market sell-off — apparent diversification can disappear exactly when you need it most.

10. Costs Matter

Commissions, per-contract fees, bid/ask spreads, and slippage all erode returns, and their impact is proportionally larger on small or short-dated options. Factor realistic costs into every plan; a strategy that looks profitable on paper can be a net loser after friction.

11. No Guarantees; Past Performance

No tool, score, or strategy can predict markets or guarantee a profit or protect against loss. Any hypothetical, backtested, or historical results shown are for illustration only, do not include all real-world costs, and are not indicative of future results. Your actual results will differ.

12. Do Your Own Research

Use NewLeaf System to learn and to structure your thinking — then make your own decisions, sized responsibly, with money you can afford to lose. If you are unsure whether options are appropriate for you, consult a licensed financial adviser and your broker's risk-disclosure materials.

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