Liquidity risk is related to the depth of the market when it comes to transacting securities. If an investor cannot sell a security quickly at its fair value, liquidity risk is said to exist.

An option is an obligation on the part of the writer. If the holder of a call option decides to exercise the option, the writer is obligated to sell the underlying at the fixed price, irrespective of the price of the underlying in the market.

Short-term deviations from the target capital structure are not uncommon and can be cause by fluctuations in interest rates and stock prices. Firms would typically adjust somewhat slowly to those target levels.

The proceeds of the short sale must remain with the broker in the margin account as security to repurchase the stock later. Additional margin for security against losses must be submitted by the short seller. This amount can be invested in highly liquid securities to earn a return for the investor but must be available to the broker in case of an emergency liquidation.

Clients may have differing risk-return objectives.