Full service broker will not do options

Z

ZEAK

Hello,

Just wanted to try to understand, why my full service broker will not let me sell any puts to try to acquire some stock.

The stock itself has gone from $50 to $10, and I wanted to pick up 1000 shares. I wanted to sell 10 puts to get some cash to help lower my cost, but he would not let me. He said the comish would be $150, but then changed his mind and said no, that my account is too small to play with options. I admit, I am a small fish, but the account is around $20K. I have cash on hand should I need to make an injection. He then said that they really dont do options, and if they were to do them my account would need to be a few hundred thousand.

But that is exactly why I wanted to sell puts in the first place, to get some cash to help build up my account. Could have go $2750 if I sold 10 and that would bring down my cost, and help to grow my account.

In the end, I went with him and just bought some shares outright, though not as many as I had originally planned. Just trying to fully understand why he will not let me do options. Can anyone here thing of some valid reasons?

Thanks
 
It could be that their risk management department may require more than 100K or whatever the amount account to be able to sell options, despite the fact that you are not selling nakeds. That's a common problem with brokers that do not specialize in options and have trading levels with specific restrictions that they assign to their customers.

It could also be that they may not deal in options much and hence don't wanna bother with it.
 
From a legal perspective, it's "safer" for the firm if you lose money trading stocks instead of options. You should close the account and move it to a more accomodating firm.
 
Quote from ZEAK:

Hello,

Just wanted to try to understand, why my full service broker will not let me sell any puts to try to acquire some stock.
Thanks
More...

1) Prime reason: They are uneducated and behind the times.

2) They do not understand that options were designed to reduce risk

3) They are stubborn and too lazy to learn

4) Their commissions are outlandish and there is no reaon to stay with them when they are hindering you from achieving your investing goals

5) Be certain you don't use options to gamble and move your account ASAP.

Mark
http://blog.mdwoptions.com/options_for_rookies/
 
My two cents on this is that options require a little more work on the broker's end, and they are just too damned lazy to... gotta go, Fed is up!
 
Quote from MTE:

It could be that their risk management department may require more than 100K or whatever the amount account to be able to sell options, despite the fact that you are not selling nakeds.
More...

this is not correct. he is selling naked because he did not short the stock and he's probably not approved for naked selling. if you want to gain approval for it in a margin account, you generally need 6-figure account equity.

alternatively, he can convert the account to cash (instead of margin) and convince the broker to let him sell naked cash-secured puts, which is what he's trying to do. they should let him, since it's no risk to them. if they don't, find a new broker because this one sucks :p
 
First off, I agree with the items that dagnyt noted.

Most brokerages have something like "Options trading levels". Here is the basics of the list from my Broker (I am a level 4 for note).

-1 Trading Disabled
0 Buy Stocks/Bonds/ Mutual Funds
1 Covered Calls / Sell Stock Short
2 Buy Calls and Puts / Cash Secured Put Writing
3 Debit Spreads (purchase a spread)
4 Credit Spreads / Equity Put Writing (sell a spread)
5 Naked Equity Call Writing / Naked Index Put & Call Option Writing

Note that selling puts with the cash only requires level 2. Since you have the money in the account, it should not be considered "naked" put selling (it is "cash secured").

If you plan to do any/more options trading in the future, I would try find a broker better suited for options trading. Even if they eventually let you sell puts with cash on hand, you might find yourselft wanting to do more later. For example, spreads, which IMO aren't any more risky when you know what you are doing.

One thing amuses me about the pickyness of brokers with options trading - I can easily and I mean easily sell everything I own - my house, car, etc. - transer the money into my main broker - and put it all into a penny stock at .02 per share! They won't complain a bit or hesitate to execute the trade. Then, if it goes under the next day, you lost all your money! Therefore, understand this - the broker is protecting themselves - not YOU!

JJacksET4
 
Quote from IShopAtPublix:

I am stuck at level 2 at both td ameritrade and optionsxpress (long put and call buying/margin trading)
More...

Get thinkorswim. Alot cheaper on commissions and more complex order management and powerful software.
 
Quote from ZEAK:

Hello,

Just wanted to try to understand, why my full service broker will not let me sell any puts to try to acquire some stock.
More...

If it's not an IRA account then I would fill out the "Know Your Client" forms again and "fudge" the numbers a bit.


Example:
  • Yearly Income: $60,000 +
  • Own or Rent: Own
  • Monthly payments: $400
  • Years at residence: 8

I'm sure you get the picture now.
 
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