The Real Risk in Trading Options By Larry Benedict, editor, Trading With Larry Benedict I’ve spent most of my working life trading options. They’re one of the most versatile trading tools around. Options enable you to take part in a move at just a fraction of the cost of trading shares. What’s more, you can trade with clearly defined risk. When buying options, the most you can lose is the premium you pay. And the explosion in option trading volumes is something to celebrate. Many folks have finally worked out just how useful options are. But as exciting as options can be, it’s important to understand how they work. After all, all this option volume can distort the very market they’re looking to trade… | Recommended Links
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| Bigger Swings One of the biggest changes I’ve seen since I started trading options more than 40 years ago is the sheer number of option expirations. Initially, most option contracts had a monthly expiration. You could have a pretty good handle on how they traded as they ran down to expiration. Then we saw the advent of weekly options. Then multiple expirations a week. Then we started seeing zero-days-to-expiration (0DTE) options. As the name implies, you’re trading the option the same day it expires. Now, don’t get me wrong. 0DTEs can be extremely profitable trades. But they can move incredibly fast. That means you can hit a max loss quicker than you might expect if the trade goes against you. Yet many novice option traders are gravitating to 0DTEs in the hope of outsized gains. The problem is that so many are chasing the same trade… With the advent of social media and online trading groups, many people will pile into the same stocks and strike prices. This is the “herd” effect. But when they’re all chasing the same side of the trade (long or short), that can distort the market and leave those folks highly exposed. And the kickback can be brutal and sudden… Tune in to Trading With Larry Live 
Each week, Market Wizard Larry Benedict goes live to share his thoughts on what’s impacting the markets. Whether you’re a novice or expert trader, you won’t want to miss Larry’s insights and analysis. Even better, it’s free to watch. Simply visit us on YouTube at 8:30 a.m. ET, Monday through Thursday, to catch the latest. | The Squeeze Say a bunch of traders open positions on the latest hot stock everyone’s talking about. As more and more traders buy call options to gain access to the move, the option market makers must hedge their positions by buying the underlying stock. This keeps driving up the stock price and pulls even more call option buyers into the market. They all think they’re onto a sure thing and that a new trend is underway. The thing they’re missing, however, is that there may be no underlying fundamentals driving that move. The stock is going up simply because of the actions of the market makers (hedging) and fresh buyers being lured in. But there are only so many buyers, and eventually, they’ve maxed out their buying power. The moment buying stops, everyone in the trade soon finds out that nothing is supporting the move. The catalysts that helped push option premiums higher suddenly disappear, sending option premiums lower. Market makers offload their (hedged) stock, sending the stock lower. If you’re late to the trade, it’s a double hit. And the losses can be painful. As shorter-dated options become even more prevalent, we’re going to see more of these false breakout moves and intraday swings. This dynamic has the potential to catch unaware traders completely off guard. The key is to remain disciplined and nimble. Use good risk management, and don’t get greedy. Additionally, you should carefully watch the underlying option volumes – in particular, if the option buying is drying up, leading to a potential reversal. Rest assured, I’ll continue to help my readers navigate these developing dynamics in 2026 and beyond. Happy Trading, Larry Benedict
Editor, Trading With Larry Benedict P.S. Today is your last chance to watch the replay of Wall Street Money Calls. If you haven’t yet learned about the eight key signals I look for on any earnings call, then be sure to tune in before the clock runs out. I’ve successfully used these signals to turn out incredible gains over my 40-year career, and I want to show you how you can start taking advantage as well, adding thousands to your account every quarter. Click right here to watch while this replay is still online. Free Trading Resources Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out. | | 
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