Limited life span
ETOs have a limited life span. Their time value falls as they approach their expiry date, and they’re worth nothing after they expire.
ETOs are affected by movements in the underlying share or index. If the market moves against you, your ETOs may fall in price or become worthless at or before their expiry date.
The high degree of leverage involved in many ETOs can work against you, multiplying losses if the market moves against you.
Loss of premium for buyers
If you buy an option and it expires worthless, you’ll lose the premium you paid for the option, plus transaction costs.
Unlimited loss for Call Writers (sellers)
As the seller of an ETO, you earn a premium. However, it’s important to be aware that you can also incur unlimited losses if the market moves against an uncovered (naked) Call position.