When an options trader takes a long equity option position, several risks need to be considered:
* All the Risks of Underlying Equities (I):The value of the option is directly tied to the price movements of the underlying equity. Any risk affecting the equity (market risk, company-specific risk, etc.) will also impact the option.
* Perceived Volatility Changes (II):Options pricing is heavily influenced by the volatility of the underlying asset. Changes in perceived or actual volatility can significantly affect the value of the option.
* Future Dividends Yields (III):Expected dividends impact the pricing of options, especially for American options where the holder might exercise the option early to capture the dividend.
* Risk-Free Interest Rates (IV):Changes in risk-free interest rates affect the present value of the option's payoff, thus influencing its price.
Therefore, all these risks (I, II, III, IV) must be considered by the options trader.