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Leverage effect in options trading risk management strategy research

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DOI: 10.23977/ferm.2023.061012 | Downloads: 26 | Views: 356


Wei Wang 1


1 University of Shanghai for Science and Technology, Shanghai, China

Corresponding Author

Wei Wang


The purpose of this research is to examine risk management strategies for leverage in options trading and explore effective ways to manage the risks associated with leverage. By reviewing the definition and concept of leverage and analyzing the risks involved, this study proposes a range of techniques for managing leverage risks, including setting risk tolerance levels, establishing position sizing and allocation strategies, utilizing stop-loss orders and protective puts, implementing diversification and hedging strategies, and monitoring and adjusting leverage levels. Furthermore, this study conducts case studies to analyze successful risk management practices and failures, comparing different strategies and their outcomes. Additionally, the research discusses the impact of regulatory frameworks and guidelines on risk management and provides future directions and recommendations.


Leverage, Options trading, Risk management, Risk tolerance levels, Stop-loss orders, Hedging


Wei Wang, Leverage effect in options trading risk management strategy research. Financial Engineering and Risk Management (2023) Vol. 6: 87-91. DOI:


[1] Yin, F. (2022). Application Research on Implied Volatility and Price Spread of SSE 50 ETF Options (Master's thesis, University of International Business and Economics).
[2] Arkorful, B. G. (2019). Does the trading of mid-term options in the Chinese stock market affect the volatility of underlying assets? (Unpublished doctoral dissertation). Xiamen University.
[3] Ren, Z. (2016). The application of option trading in risk management. In China Futures Industry Association (Ed.), Proceedings of the 10th China Futures Analyst and Over-the-Counter Derivatives Forum (pp. 2). [Publisher unknown].
[4] Quan, L. P. (1999). A comparison of futures and options trading methods and their application in risk management. Nanjing Journal of Economics, (04), 64-66.

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