Uncovered CALL Option Risks: In theory, writing uncovered OEX Index CALL options presents unlimited potential loss.
Uncovered PUT Option Risks: In theory, writing uncovered OEX Index PUT options presents loss potential being the difference between the written PUT strike price and zero.
Covered PUT Option Risks: The maximum loss potential of the written (sold) OEX Index PUT options is limited to the difference between the written PUT strike price and the purchased protective PUT strike price.
Margin Call Risk: A "margin call" is when the available margin capital in the account falls below zero, then, the account is in need of additional funds in order to maintain the existing options positions open.
"The Top 100 Index Strategy" uses margin because of the written (sold) S&P 100 Index (OEX) options; uncovered CALL and PUT options.
The possibility exists that the OEX may move significantly higher than the written CALL options or significantly lower than the written PUT options, causing the existing options positions to become deep "in-the-money". If this happens, the account may experience a margin call; insufficient margin capital to maintain the open deep "in-the-money" option positions.
When a margin call happens, the client has one of two choices;
1. Deposit additional capital (cash or marginable securities) to the account to cover the margin call.
and / or
2. Close out (buy back) existing options positions to reduce the margin use, eliminating the margin call.
If choice two is taken, this may result in the account realizing a loss. The cost to buy back existing "in-the-money" positions may be greater (or substantially greater) than the total net cash flow received since commencing the Top 100 Index Strategy.
Clients using the Top 100 Index Options Writing Strategy must understand the strategy and its associated potential risks and rewards. Options are not suitable for all investors, and require a higher level of investment knowledge, net worth and risk tolerance.