Covered call writing along with all other stock and option strategies require us to open a brokerage account. This process will take more than a simple phone call. All brokerages will require us to fill out an options approval form as designed by its compliance department. Based on the information gleaned from this form, the brokerage will decide which level of trading approval the investor is entitled to.
So how do we get the necessary experience without first getting approval to trade? This is a dilemma that is easy to overcome by starting out with simpler and less risky strategies like covered call writing I may be biased but as you will see, the brokerages agree with me. So before you open and fund a brokerage account, make a phone call to find out the policy regarding options trading approval.
One of the files is a list of several online discount brokers with the contact information. Brokerages are required to undertake reasonable diligence when opening accounts so assist in avoiding inappropriate risks on the part of retail investors.
They also have their own interests in mind so as to avoid regulatory and legal issues. The form will ask about our trading experience and knowledge as well as our financial resources. There are no official standards and levels may vary from broker to broker but in all cases the higher levels incorporate the lower level approvals.
Here is a graphic of a typical brokerage format for trading levels:. Sophisticated options traders know the level appropriate for their needs. For Blue Collar Investors, Level 1 is the place to be in most but not all instances, at least initially.
It will allow us to write covered calls and use protective puts if that is part of our strategy. It will also allow us to incorporate our trading into our self-directed IRA accounts.
It may also keep us out of trouble! We will be less inclined to try riskier strategies while we are developing our trading skills. A few years ago, a wealthy group of investors flew me out to the west coast to do a private seminar. One investor immediately way too soon started trading hundreds of thousands of dollars in covered calls.
His brokerage gave him a high level of trading approval because the account was funded with millions of dollars. One day he inadvertently sold the underlying thousands of shares and was left in a risky naked uncovered options position.
He still needed a box of Kleenex. Had he not had a high level of trading approval, selling the long stock position would not have been permitted and there would not have been the loss. Find the appropriate level of trading approval and avoid unnecessary risks. This was a light week for ecnomic reports:. Here is the link to register for free:. To send us an email, contact us here.
Subscribe to our e-mail newsletter or RSS feed to receive updates. Contact us by phone at Additionally you can also find us on any of the social networks below:. I attended a seminar last year where the speaker suggested trying to get the highest trading level possible in case you eventually need it. I must respectfully disagree. If an investor has not as yet mastered the more sophisticated, risky option strategies I see no reason to attaempt to get approval for those levels.
Once a retail investor has mastered less rsiky strategies like cc writing and is prepared for more advanced strategies that level of approval can then be requested. Look for the report dated You can access it at:. I will not be entering any new positions this week for the very reason you stated…no time value.
Earnings season is tricky but can be circumnavigated. However, look at how many stocks are reporting in the first week of the next contract…I count 20! All become eligible after the report unless you see a huge decline in stock price after the report. Then I would stay away. Aside from these 27 potential candidates you have 10 — 20 ETFs as well. I was surprised to see Scottrade made your list of online discount brokers. I moved my accounts away from them when I started cc writing.
Mail will not be published Required. Optionally add an image JPEG only. The Blue Collar Investor Learn how to invest by selling stock options. Levels of trading approval There are no official standards and levels may vary from broker to broker but in all cases the higher levels incorporate the lower level approvals.
Here is a graphic of a typical brokerage format for trading levels: Levels of options trading approval.
About Alan Ellman Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.
Connect With Us To send us an email, contact us here. Additionally you can also find us on any of the social networks below: A Cause for Concern? Alan, I attended a seminar last year where the speaker suggested trying to get the highest trading level possible in case you eventually need it. Ellen, I must respectfully disagree. You can access it at: New positions this week? Earnings season coming up: I had a few recent inquiries on these topics.
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Why Use Technical Analysis: February 8, 9: Blair In my quest for continuing my financial education, Terry Jay; Good luck on your play. Recommended Investing Links DR. I was a frustrated blue collar investor just like you.More...