Brokers who offer Put Spread vehicle also for CashAccts

earth_imperator said:
@TheDawn village idiot wrote

You have found a fool as a companion! :) The author of the above text has no clue of options, as much like as you. :D
He's misinterpreting the premium of an option as well the true meaning of "leverage".

Options have no leverage. Only a margin account makes options quasi leveraged: intraday 4x leverage, overnight 2x leverage, by simply allowing auto-borrowing funds from the brokerage firm. This is the standard margin acct. There are some other margin account types which might allow even more leverage, for example the so called "portfolio margin account".

This is not possible in a cash acct (which is the topic here). Therefore: cash account does not provide any leverage, one can use only the own money.

And I repeat: options don't have any leverage. Just study the P/L diagram of an option, for example here: https://optioncreator.com/

See also these postings regarding options trading in cash account (even daytrading is possible in cash account!):
https://www.elitetrader.com/et/thre...y-to-cash-accounts.368400/page-5#post-5640814
https://www.elitetrader.com/et/thre...y-to-cash-accounts.368400/page-4#post-5635190
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You are quibbling over the definition of leverage.
To keep it simple If a stock fully paid for moves up ten percent percent and the fully paid for option moves up 50% a person would not be wrong to say the leverage is 4 to 1. However there is time decay for the option because it has an expiration date. Therefore the leverage factor changes over time. As the option is for an out of the money strike price approaches expiration it will decline to zero on the last day.
As the option is fully paid for the broker is not loaning you money. the broker is not extending leverage to the customer. The leverage comes from the option itself.
 
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zdreg said:
You are quibbling over the definition of leverage.To keep it simple If a stock fully paid for moves up ten percent percent and the option moves up 50% a person would not be wrong to say the leverage is 4 to 1.
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This is wrong thinking, b/c imagine this: if you trade options only, then the price of the underlying stock does not interest you, ie. you know only the option premium as basis for your PnL calculations... Q.E.D.
 
earth_imperator said:
This is wrong thinking, b/c imagine this: if you trade options only, then the price of the underlying stock does not interest you, ie. you know only the option premium as basis for your PnL calculations... Q.E.D.
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The general rule is changes in the price of the stock causes change in the price of the option.
 
Overnight said:
Would that PnL graph look any different were it an American-style option?
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No. The PnL is the same for both American as well European style options.
The only difference btw. them is the exercise possibility:
American style option: an option that may be exercised on any trading day on or before expiration.
European style option: an option that may only be exercised on expiry.

The practical meaning of exercise with American style is this: if you short-sold a Call option then the counterparty (ie. the buyer of the option) can demand anytime that he/she wants "delivery" of the underlying stock :) Usually of course only when his/her position is much in the profit zone.
For a Put seller such an exercise means: he/she has to buy the underlying stock of the counterparty immediately using the agreed-upon price (ie. the strike price).
With European style this choice of anytime is not possible.

And: these two above are often described as vanilla options.
There are some more of such option styles, like Asian, Bermudan, Barrier, Binary, Exotic, ...
But these are non-standard, and not used in the regular US market of listed stocks & options.
 
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earth_imperator said:
No. The PnL is the same for American as well European style options.
The only difference btw. them is the exercise possibility:
American style option: an option that may be exercised on any trading day on or before expiration.
European style option: an option that may only be exercised on expiry.
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No. Premium paid are not the same.
 
earth_imperator said:
Not always... :) Multiple factors play a role, incl. IV...
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Here's a demonstration of the above said using a Call option with Strike=10:

USpot=10.00 DTE=365 IV=50 --> Premium=1.9741

on the next day USpot rises and IV falls:

USpot=10.25 DTE=364 IV=45 --> Premium=1.9277

Ie. stock rose but premium fell! :) This was caused by the IV falling to 45 from 50, as well now having 1 day less DTE.

Of course one can easily find also parameters where premium stays the same, eventhough stock price has changed :)
 
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