[Informational Alert]
Dear Members:
I recently sent out a trade where I was creating a spread by selling an option where I already owned another option on the same stock, Citigroup (C). Different brokerages have different rules and requirements about trading spreads. As a general statement, a trader needs to be Level 3 to place a spread trade. Simple directional trades where one buys a put or call option is ordinarily a Level 2, but every trader should talk to their brokerage firm to 1) Find out what level they have been assigned and 2) what trades the brokerage permits. Some brokerage firms, for example do not even permit any option trades.
The Level assigned is generally a function of your own trading experience, and sometimes is also a function of the amount of money in the account. For example, a Level 4 trader is normally permitted to trade naked puts in addition to spreads and directional plays. I have heard of some firms that require a minimum of $100,000 in the account to allow naked put trading and others with a minimum of $5,000 or $10,000. It is important to talk to your own brokerage firm to find out what their rules may be.
Sincerely,
Bill Kraft
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