Pattern Day Trading

[Fast Eddie]

I do options. Have several questions about PDT. I understand 3 day trades within 5 trading days, for accounts with less that $25,000 in - not sure - net liquidity.

1. When you are accumulating a position in an option at a certain strike, when you sell for pattern day trade considerations is it first in //first out

Example - Carried 40 contracts in X over to the next day. Bought 10 more contracts of X during the current trading session. Sold 40. With first in //first I am thinking this would not count against a PDT count. Would have a net position of 10 contracts.

2.It is unclear to me how the $25,000 comes in. If you have $25,000 in net liquidity when you make the trade are you not penalized even if you started the day with less than $25,000

Example - Started day with $10,000 net liq. After closing out a winning position had $28,000 net liq. If you are initiating the trade with at least $25,000 does this factor into PDT if you decide to close it out that day? Does it matter if net liq after close is more or less than $25,000

Hope someone can help

 

[Robert Morse]

Hi Fast Eddie- Maybe this helps. When you apply for a margin account, to be an active day trader, the account Liquidating equity the night before must be $25K or more. If below, and you do more than 3 DTs on any rolling 5 days, you are in violation. Once you do 4 day trades, you must stay at $25K or more or you lose your BP the next day and you are closing only. I believe it makes no difference if you come in with an option/stock position or not. If you buy/sell the same security in the same day, that is one day trade. In your example, you start with $10,000, you can't get any benefit from that increase in account value until the following day. Day Trading BP is set overnight. https://www.finra.org/investors/lea...ng/day-trading-margin-requirements-know-rules

 

[Option_Attack]

Not an answer to your question, but do you mostly trade long index options? If so, you might look into trading futures options. They are not subject to PDT rules.

 

[Robert Morse]

That is a good point, but if he has limited cash, maybe the leverage on futures is not a good idea. Maybe a cash account for day trading options would work better. The is no PDT rule in a cash account and options settle the next day. You would only get 1X your excess equity and you can't recycle BP until the next day.

Not an answer to your question, but do you mostly trade long index options? If so, you might look into trading futures options. They are not subject to PDT rules.