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First of all, thank you for all your replies to my previous posts.
To begin trading naked options (for the only purpose of learning in real time), what should my initial capital be?
Thank you!
Doctor TR
You will need $25,000 at a minimum, when you're attempting to do what you're going to do in day trading options, you're going to run afoul of the day trading minimums pretty quickly. That minimum account requirement in order to create margin (which you will need to short) is $25,000.
If you don't want to use margin, then you're limited to your cash available, less any maintenance requirements for the shorts which can vary depending upon your B/D.
If you're simply looking to learn, I would check out a paper trade account.
Here is a good primer on what you'll need not only for your options account but for any active trading you may decide to do:
4210. Margin Requirements (Continued)
(c) Maintenance Margin
The margin which must be maintained in all accounts of customers, except for cash accounts subject to other provisions of this Rule, shall be as follows:
(1) 25 percent of the current market value of all securities, except for security futures contracts, “long” in the account; plus
(2) $2.50 per share or 100 percent of the current market value, whichever amount is greater, of each stock “short” in the account selling at less than $5.00 per share; plus
(3) $5.00 per share or 30 percent of the current market value, whichever amount is greater, of each stock “short” in the account selling at $5.00 per share or above; plus
(4) 5 percent of the principal amount or 30 percent of the current market value, whichever amount is greater, of each bond “short” in the account.
(5) The minimum maintenance margin levels for security futures contracts, long and short, shall be 20 percent of the current market value of such contract. (See paragraph (f)(10)) of this Rule for other provisions pertaining to security futures contracts.)
I'll check with TD Ameritrade (where I keep my retirement funds) about their naked options requirements.
Doctor TR
A paper trade account is one where you can mock trades. You can test out strategies, see if they work as you thought they would. For example, Selling calls to open 50 XYZ xx Apr 2018 @ 2.00 and seeing how that plays out, what would happen within your time frame and if your bet was correct.
Remember with options if you're holding to expiration you have to be correct on direction, price and time. If you're only opening a position, you have to be correct on direction, price, volatility and how active that strike price will be.
Your answer for TD's requirements will be on page 11 of their margin agreement.
Uncovered equity options
Because writing uncovered—or naked—options represents greater risk of loss, the margin account requirements are higher. The writing of uncovered puts and calls requires an initial deposit and maintenance of the greatest of the following three formulas:
a) 20% of the underlying stock27 less the out-of-the-money amount, if any, plus 100% of the current market value of the option(s).
b) For calls, 10% of the market value of the underlying stock PLUS the premium value. For puts, 10% of the exercise value of the underlying stock PLUS the premium value.
or
c) $50 per contract plus 100% of the premium.
Also and this is big, YOU WILL NOT be able to write naked options in a retirement account. ANYWHERE. You will have to open a taxable account.
PLEASE, also read page 14.
Last edited by txgolfer130; 01-02-2018 at 10:34 AM..
I'll check with TD Ameritrade (where I keep my retirement funds) about their naked options requirements.
Doctor TR
A paper trading account, also known as a simulated account, allows you to trade with fake or play money. It's great for beginning traders to practice before trading with real money or if a seasoned investor has a new system they want to test out. I don't have experience with options so can't recommend a platform but i think TD Ameritrade offers a simulated account. I just did a Google search and found this link that reviews practice accounts. But do your own research to see which platforms you'd prefer to use.
The only problem with simulations is that the adrenaline doesn't flow.
Doctor TR
Doctor,
That is the main purpose of simulated or paper trade accounts. You NEVER want the adrenaline to flow when trading. You REALLY want a boring, to the plan, no surprises experience. Adrenaline and that "juice" you get when in the market actively is what leads traders to their undoing.
You want to experience what the trades will do, what didn't you see happening and how did the market react while your position was open.
The only problem with simulations is that the adrenaline doesn't flow.
Doctor TR
Well, are you in this to make money or to get an adrenaline rush? If the latter, go skydiving or do something more exciting. One of the first things professionals say about investing is you want to remove all emotions out of your trading. It sounds like investing might be too boring for you.
Last edited by Gabriella Geramia; 01-02-2018 at 11:21 AM..
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