When selling options can the losses exceed the balance on your account

Here's the catch: You can lose more money than you invested in a relatively short period of time when trading options. This is different than when you purchase a stock outright. In that situation, the lowest a stock price can go is $0, so the most you can lose is the amount you purchased it for.

What is the maximum loss in selling a option?

As a call seller your maximum loss is unlimited. To reach breakeven point, the price of the option should increase to cover the strike price in addition to premium already paid. Your maximum gain as a call seller is the premium already received.

Can you lose more than you pay for an option?

The buyer of an option can't lose more than the initial premium paid for the contract, no matter what happens to the underlying security. So the risk to the buyer is never more than the amount paid for the option. The profit potential, on the other hand, is theoretically unlimited.

How do you handle loss in options trading?

The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.