> For the complete documentation index, see [llms.txt](https://docs.dreamos.app/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.dreamos.app/risks.md). # Risks Trading options involves financial risk. Before opening a position on Dream, users should understand the risks associated with options trading, market conditions, execution, settlement, and the infrastructure supporting their trades. ### Market Risk Options are sensitive to changes in the price of the underlying asset. Adverse price movements can significantly reduce an option's value, potentially resulting in the loss of the entire amount invested. Options prices are also influenced by implied volatility, time remaining until expiration, and other market factors. An option may lose value even when the underlying asset moves in the anticipated direction. ### Time Decay and Expiration Risk Options generally lose time value as they approach expiration, a process known as time decay. As expiration approaches, an option's time value may decline rapidly, particularly when the underlying asset's price remains below the strike price for calls or above the strike price for puts. Options that expire out of the money have no intrinsic value and settle worthless, resulting in the loss of the amount paid to open the position. ### Liquidity and Execution Risk Dream facilitates options trading through institutional liquidity providers using a Request for Quote (RFQ) execution model. The availability and pricing of executable quotes depend on market conditions, contract characteristics, position size, and liquidity provider participation. Users should understand that: * The price available to close a position may differ from its displayed valuation. * Bid-ask spreads can vary across assets, strikes, and expirations. * Larger positions or less actively traded contracts may have wider spreads. * Executable quotes may change or become unavailable before an order is completed. These factors can affect execution quality and the amount users receive when closing positions. ### Counterparty and Custody Risk Options on Dream are executed through institutional-grade OTC trading desks, rather than individual or anonymous market makers. Dream maintains direct contractual relationships with these institutional counterparties, which assume the obligations associated with the options they execute. These counterparties manage their market exposure through established risk-management practices, including hedging and position limits. Their trading and risk-management processes are designed to keep outstanding obligations within their financial capacity. Funds allocated to open options positions are held by the executing counterparty. Dream does not require counterparties to lock collateral in smart contracts against their outstanding obligations. This structure introduces counterparty credit and custody risk. If an institutional counterparty becomes insolvent or fails to meet its contractual obligations, settlement payments or funds owed may be delayed, partially recovered, or lost. The treatment and recoverability of funds depend on the applicable contractual arrangements and legal framework. Institutional status, hedging practices, and contractual obligations reduce certain risks but do not eliminate the possibility of counterparty default. ### Technology and Operational Risk Dream relies on software, blockchain networks, wallet infrastructure, and third-party service providers to facilitate deposits, withdrawals, trading, and settlement. Technical failures, network congestion, security incidents, or service interruptions may temporarily affect access to the platform or the ability to manage positions. Users can export the private keys associated with their self-custodied wallets and access supported assets through compatible external wallets. However, open options positions are managed through Dream's brokerage infrastructure and cannot be independently managed through an external wallet. ### Settlement Risk Options on Dream are cash-settled based on the underlying asset's settlement price at expiration. The settlement value depends on the relationship between the underlying asset's settlement price and the option's strike price. Positions that expire out of the money settle worthless. Users should understand that prices may move significantly before expiration, and a position that was previously profitable may ultimately settle for less than its earlier market value or expire worthless. Settlement may also be affected by operational disruptions, pricing errors, or counterparty failures. ### Understanding Your Risk Users should review Dream's documentation to understand how options are priced, how unrealized profit and loss is calculated, how positions are opened and closed, and how settlement works. Options involve substantial financial risk and are not suitable for everyone. Users should only trade with funds they can afford to lose. --- # Agent Instructions This documentation is published with GitBook. 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