Info: Pattern Day Trading rule does not apply to cash accounts!

[earth_imperator]

I don't think any US broker allows option spreads in a cash account, and that's a deal breaker for most option traders. A cash account simply doesn't offer the range of strategies that most experienced option traders want to use.

This is only half true! The following put option spread (also called vertical put spread) is easily possible in a CashAcct:
ShortPut + LongPut
But you are right, many other advanced option strategies/constructs are not possible in a cash acct.

 

[BMK]

The following put option spread (also called vertical put spread) is easily possible in a CashAcct:
ShortPut + LongPut

Yes, you are correct, but the broker will not treat it as a spread. It will be treated as two separate positions: a long put and a cash-secured short put. So you would have to maintain the cash requirement. Ties up huge amounts of capital when compared to a spread in a margin account.

 

[earth_imperator]

Yes, you are correct, but the broker will not treat it as a spread. It will be treated as two separate positions: a long put and a cash-secured short put. So you would have to maintain the cash requirement. Ties up huge amounts of capital when compared to a spread in a margin account.

Hmm. too bad. I think there is no reason for not offering it also in cash acct, after all everything is "covered" in a cash acct, ie. it's more secure than a margin acct, IMO.

 

[BMK]

Brokers use all kinds of rules and limitations that don't really make sense on a logical or mathematical level.

For example, even in a margin account, if you are short stock and long a call, your risk can be very limited. If I short the stock at $50, and buy a 60 call, my max loss is $1000 plus the premium I paid for the call.

But the broker won't calculate it that way. It will be two separate positions, and I will have to maintain the margin requirement for short stock, without accounting for the protection offered by the long call.

The only way to get past these limitations is to have an institutional account, or maybe a retail account with portfolio margin. But for that you need around $100K in equity.

 

[Illini Trader]

I don't think any US broker allows option spreads in a cash account, and that's a deal breaker for most option traders. A cash account simply doesn't offer the range of strategies that most experienced option traders want to use.

You are correct. Cannot do spreads in a Cash Account so it is a trade off to a trader's style and needs. Of course you can do it all in a PDT account.

 

[earth_imperator]

I communicated with TDA and this is the way a Cash Account works with Options

1. Settlement for Option Trades is one day.
2. Thus if you can you can day-trade your settled cash up to the extent of your account value. For example in a $5,000 account you could do 10 DayTrades of $500 each so the term "unlimited day trades" is misleading.
3. With one day settlement you can do it all over again the next day.
4. If you hold an option overnight you can sell it and buy another option but you cannot daytrade the option you just bought because proceeds from the sale is not settled until the next day.

Regarding 4: If that position of yesterday was using only 1/10 of your settled cash, then today you still can do 9 daytrades of same size (ie. each 1/10 of cash of yesterday at mkt close) plus opening another, 10th, position, but as you say must keep the last one overnight.

@vanzandt some days ago had posted similar info:

A good thing to do, is when you start the day, write down the amount of settled cash at the beginning of the day before you do any trades. You can open and close as many trades as you like that day, no PDT, as long as you don't exceed that amount.
Say your settled funds are $10K, you can do 20 round trip trades buying and selling an $5 Apple call or put. And then do the exact same thing the next day.

And... say you do that. Your last trade of the day after you've done those 20 ----- you can still buy a position to hold overnight. For example you could buy all 20 Apple $5 calls for $10K and then hold overnight.

The next day however you will have zero settled funds. If you sell, the $10K is available to open another position, BUT you must hold that one overnight too. If you just close the position and take the day off, the $10K will settle the next day and you can do your 20 round trip trades all over again.

And it works the same way with "sell to open", ie sell a $5 put and buy it back 20X in one day. The next day you can do the same thing because the funds you received selling will be settled in your account.