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BuySellSideTrader2020
When I applied for options on my new account, I only got approved for Tier 1 Covered. As someone that has traded with options before via Calls and Puts (Tier 2), what does this mean?
Robert Morse
Sponsor
Level 2 is for buying puts and calls. For us, it would mean you did not met our financial requirements. You should review your application for errors.
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You are probably, just approved for Covered Calls. If you have stocks with options, you can sell options on those stocks for each 100 shares. You get to sell call options of 1 contract for every 100 shares you have of that stock. Say, you have AAPL and you sell a call when AAPL was trading at $220. You sell a $250 Call Option expiring say in 20 days and it has a premium of $3.00 or $300. If the call option is less than $250 at expiration, you keep that $300 plus your shares. You may then, sell another call option the following month. If say AAPL runs to $300 per share, you would be obligated to sell your shares for $250 although, AAPL is now worth $300. The buyer of the call option now buys the 100 shares of AAPL from you at $250 and can sell it for $300 pocketing the $50 per share or $5,000 profit for himself. If you bought those 100 shares for say $220 then, your profit would be $250-$220 = $30 or $3,000 (capital gains) plus the $300 premium you collected for selling the call option. Total profit for you would be $3,300.
Re-apply and fudge the numbers. Below should get you approved
Brokers do not verify.
- 5 years experience trading options.
- 5 years trading stocks.
- 0 years everything else.
- Net worth $50,000.
- Yearly income $20,000.
Brokers do not verify.
Never misrepresent on any document. First and foremost it's unethical and second, it will defendant/plaintiff's exhibit one - should an arbitration of lawsuit ever occur, Brokers talk to other brokers and have an unofficial "do not fly list" and landing on it may end your trading ability.
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BuySellSideTrader2020
I think there is something wrong with scenario 2. If it declined to $16 from $23, you lost $700 on the stock less your premium of $300 or a net loss of $400? You still end up losing monies because the stock declined by a larger amount than the premium your received. The premium reduced your losses to just $400 instead, of $700.
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BuySellSideTrader2020
So it’s the strike price that determines your overall PnL.
My thinking was take the PnL from the shares and PnL from options premium to determine net PnL. But when it comes down determining it I was under the impression that I would use my initial buying price per share. Get the difference 20-16=4 and then the difference in opt premium (3-2) + 3 = 4 .... but it should be the strike-expiration price 23-16=7 Andy using the previous opt premium 7-4=3. So a $300 loss...
So I am most confused on do I use my initial buying price of 20 or the strike of 23?
If you bought the stock at $20 that is your cost. The strike price of $23 only determines whether the option is in the money or out of the money at expiration date. When it is out of the money, you keep the call option premium you received and get to keep your shares. You can then, write another call option to sell. If it is in the money, say it goes to $30, you are obligated to give up your shares and sell it to the call buyer who paid you say $300 to give him your shares at $23. So, in this case, you made $23-$20 = $3.00 or $300 on the capital gains plus the $300 premium for selling the call option. Total profit for you is $600 on your initial investment of $2,000.