Options settlement, margin account

A

Acumen

Just got an account at ThinkorSwim to start trading options and I have a few questions on settlement and margin.

For right now I am simply going long calls/puts (100% margin requirement).

Why is it that if I buy and sell a contract in the same day, it settles instantly?

Why is it that if I sell a contract I held overnight, I can buy a contract but not sell it?

The instant settlement is nice, basically like a prop shop. Im I missing something here? Ive only done one daytrade for the instant settlement as I have not fully funded the account yet, just a trial.

Can I buy and sell all day as long as I don't hold overnight and don't go over the total cash value of the account?

Will I be blocked from trading as I come to 2/4 times the cash value?

Am I paying margin fee's for any of this?

Thank you in advance.
 
Don't know exactly what you mean. Can you give us an example?

Basically when you buy an option, you pay the premium (the price of that option). TOS has an option buying power, so you can buy the options till the option buying power is zero.

When you closed an option position, TOS gives you back the buying power, and so you can continue to play the option day trading game over and over.
 
Quote from Acumen:


Why is it that if I buy and sell a contract in the same day, it settles instantly?

Why is it that if I sell a contract I held overnight, I can buy a contract but not sell it?

The instant settlement is nice, basically like a prop shop. Im I missing something here? Ive only done one daytrade for the instant settlement as I have not fully funded the account yet, just a trial.

Can I buy and sell all day as long as I don't hold overnight and don't go over the total cash value of the account?

Will I be blocked from trading as I come to 2/4 times the cash value?

Am I paying margin fee's for any of this?

Thank you in advance.
More...

1) If you do not have $25,000 in the account the number of day trades you can do is very restricted. I believe that's the problem.

2) You said: You come in long and sell the option. That cancels your position. You cannot sell 'it' because there is no 'it.' You own no options, so when you sell, it would be a naked short and TOS will not allow you to do that with your experience and account size.

3) All option trades settle 'instantly.' Actually they settle overnight but the cash is in your account immediately.

You are not being charged for any margin because you are not using any.

Mark
http://blog.mdwoptions.com/
 
Thank you, that was what I was asking about, the buying power. I am not used to having it instantly back in my account at a private broker (ie not prop shop).

I am kind of shocked that it is immediately available and that it's really true that I can just day trade away all day as long as I open the position that day.

As an example of the other thing I was talking about. I bought a call yesterday, and sold it today. When I then went to buy another call, I was warned that I could not sell the call bought with funds from an overnight position until the following day.

That doesn't bother me, but it seems counterintuative that I cant use funds from an overnight position, but that I can from a daytrade.
 
Ah finally found what I was looking for, at 4 times the account equity from the start of the day, they stop letting you trade. Still with options settling instantly and at least 25k in the account to qualify, 100K+ buys alot of contracts.

Still strange about the overnight thing though.
 
Quote from dagnyt:

...
2) You said: You come in long and sell the option. That cancels your position. You cannot sell 'it' because there is no 'it.' You own no options, so when you sell, it would be a naked short and TOS will not allow you to do that with your experience and account size.
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Thinkorswim has neither trading levels nor account size restrictions to sell naked options (well, with the exception of satisfying the marging requirement obviously).
 
Correct me if I am wrong, but isn't "it" the contract? Say for a call, to be able to buy the underlying at a certain price?

If I sell it before expiration, it is not canceled, because the person who wrote the contract is probably not sitting there with a bid, it is likely some other trader trying to purchase a contract. The contract would then be transfered from me to the new trader with the original writer remaining the same.
 
Quote from Acumen:

Correct me if I am wrong, but isn't "it" the contract? Say for a call, to be able to buy the underlying at a certain price?

If I sell it before expiration, it is not canceled, because the person who wrote the contract is probably not sitting there with a bid, it is likely some other trader trying to purchase a contract. The contract would then be transfered from me to the new trader with the original writer remaining the same.
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It is a contract, however, the Options Clearing Corporation (OCC) is the counter-party to each contract. Even though you trade with another market participant, when the trades are cleared your counter-party is no longer the person on the other side of the trade, but the OCC. This is why the exchange-traded options do NOT have credit risk.
 
Quote from Acumen:

Ah finally found what I was looking for, at 4 times the account equity from the start of the day, they stop letting you trade. Still with options settling instantly and at least 25k in the account to qualify, 100K+ buys alot of contracts.
More...
I'm not sure if that jives with PDT rules... tho each broker can make their trading rules and margin requirement more stringent than Reg D, etc.

You might want to read about PDT (Pattern Day Trader) rules. With a 25g minimum, you can have 4X margin intraday but can only carry 2X overnight. There's no limit to the amount of trading.
 
Quote from Acumen:

Correct me if I am wrong, but isn't "it" the contract? Say for a call, to be able to buy the underlying at a certain price?

If I sell it before expiration, it is not canceled, because the person who wrote the contract is probably not sitting there with a bid, it is likely some other trader trying to purchase a contract. The contract would then be transfered from me to the new trader with the original writer remaining the same.
More...
You (A) buy a call. Someone (B) sold it to you. Later, you sell your call to close (to C). B is still short, C is long. You're out of the loop.
 
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