I'm trying to execute this strategy: https://www.tradeking.com/PrivateView/edu/opb/opbSellingCashPutsStockBuy.tmpl
The option I'm trying to sell is DZG QB, when I enter a "Sell to Close" order, Tradeking tells me: "Execution of this trade may create a naked option position. Your account is not authorized for this level of options trading." What am I doing wrong?
BTW, I have a Level 1 options trading account.
Well to start out. It would be a "Sell to Open" trade, not a "sell to close".
And #2, you need level 4 trading in order to sell cash secured puts.
You're slightly bearish short-term; bullish long-term.
Potaire
Above copied from the Playbook. But, "Sell to Close" would definately gum it all up, as Ivan said.
Potaire
I am also approved for options trading at TD Ameritrade. TD Ameritrade states that:
"A cash-secured put is a short put option position where the writer (seller) also holds cash in his or her account equal to the amount of money that would be needed to satisfy the writer's obligation should the option(s) be assigned. In order to write cash-secured puts, your account must have Covered (Level 1) options approval."
I'm just curious as to why I can't do this here at TradeKing, when I can do it with a Level 1 approval with TDAM.
I just asked Chris (staff) in Live Help---Level IV is required. Ivan and the Teacher are correct--the rest of us are wrong. Chris says TK is trying to get the clearing house to ease up a bit on this restriction.
Potaire
Good Afternoon Everyone:
We actually require Level 4 in order to write a put, whether it's cash secured or being held on margin. Strictly from a strategy and option knowledge level point of view the risk is still the same. Our clearing firm considers this strategy a more advanced strategy which would require some option trading experience, and other requirements prior to trading. They hold all put writing activity to a Level 4 approval, whether naked or covered. Also, another thing to consider is the risk to reward ratio. For example if you are buying puts or calls to open, the max loss would be the premium and with a call your potential gain is infinite. However when writing a put, you are putting up a lot of money, some people do this to collect premiums while others do it because they evenually want to own the stock. So they are a bit more complex from that standpoint.
While the fact that the position is cash covered does lower TradeKing\'s risk, the risk to the client remains the same, the difference between the Strike price and the Premium received.
Regards
Neat Atkins - Supervisor E-Communications - TradeKing
A good rule of thumb is to ask yourself if you are willing (no matter what) to own the specific stock at the specific price. So if you sell a June $120 put for RIMM @ 2.0 credit (today's prices), then you should be willing to own 100 shares of RIMM for $120 even if the price plummets to $110.
You might could see it as a way to set a limit buy order and get paid a premium to do so. So... sell a $120 June put on RIMM, receive $200, keep $12,000 cash in your account until expiration and you will own the stock for $120/share if it falls that much (which I doubt this month).
...(if I'm understanding this correctly) ;P
You must Log In to post to this forum.
Not a member? Register Now to …
