Whick broker will give you approval to trade spreads?

[HowardCohodas]

Quote from rew:

Anyhow, if you want to trade options don't use TDAmeritrade. Their commissions are too high and you really don't need some ignoramus telling you that buying a call is safer than buying a debit call spread.

Unless you ask for a better rate. Or at least that's what I did with ThinkOrSwim.

 

[tickmagnet]

Go to optionshouse . The best deal overall, good and easy to understand trading tools,cheapest commissions and good support.

 

[dcvtss]

Quote from rew:

With a debit spread you can't lose more than your original net cost.

What about a long ITM/ATM call short OTM call ratio spread? There's more out there than verticals and IC's...

 

[rew]

Quote from dcvtss:

What about a long ITM/ATM call short OTM call ratio spread? There's more out there than verticals and IC's...

It was obvious from the context that we were talking about plain vanilla vertical spreads.

 

[donnap]

Quote from rew:

It was obvious from the context that we were talking about plain vanilla vertical spreads.

Yes, it was.

rew, I get your point and during my early years I preferred debit VERTICAL spreads for that reason.

But generally, there's no difference between the two equivalent spreads in regards to costs or R/R - at least at the brokers I've looked at.

Using the same strikes and expiry with $1 apart spreads, say we can buy the debit for about .70 . The equivalent credit should be about .30.

With the debit the cost is .70. With the credit the .30 goes to cash and there's a 1.00 margin req. for a "cost" of .70.

For R/R there's no need for brokers to differentiate between the two - it should be up to the trader to understand the risk.

 

[spindr0]

Quote from rew:

The risk/reward is very different. With a debit spread you can't lose more than your original net cost. With a credit spread your worst case loss can easily be ten times or more what you received for the sale of the spread. There's nothing inherently wrong with credit spreads, I sell the dang things all the time, but you have to be aware of the risks.

You might wanna rethink that one...

 

[Eliot Hosewater]

Quote from spindr0:

Quote from rew:

The risk/reward is very different. With a debit spread you can't lose more than your original net cost. With a credit spread your worst case loss can easily be ten times or more what you received for the sale of the spread. There's nothing inherently wrong with credit spreads, I sell the dang things all the time, but you have to be aware of the risks.

You might wanna rethink that one...

Back to level 0 for rew.

BTW, are the mainstream brokers still putting cash-covered puts in a more risky category than covered calls?

 

[traderlux]

Quote from Eliot Hosewater:

Back to level 0 for rew.

...good one...

 

[rew]

Quote from donnap:

Yes, it was.

rew, I get your point and during my early years I preferred debit VERTICAL spreads for that reason.

But generally, there's no difference between the two equivalent spreads in regards to costs or R/R - at least at the brokers I've looked at.

Using the same strikes and expiry with $1 apart spreads, say we can buy the debit for about .70 . The equivalent credit should be about .30.

With the debit the cost is .70. With the credit the .30 goes to cash and there's a 1.00 margin req. for a "cost" of .70.

For R/R there's no need for brokers to differentiate between the two - it should be up to the trader to understand the risk.

Of course for the credit spreads I was talking about the usual case where both options are OTM. A debit call spread that costs 0.70 with OTM calls is indeed synthetically equivalent to a credit put spread at the same strikes. The net credit for the ITM puts should be about 0.30. However, usually the liquidity for ITM options isn't as good as it is for OTM options, so in real life you'll probably get a slightly worse price on the ITM credit spread. I rarely find it worth my while to use the ITM synthetically equivalent version of an OTM spread.

 

[rew]

Oops, I hit submit before I was finished...

Anyhow, you are right that if a broker only allows debit vertical spreads and someone wants to sell a credit spread they would simply buy the synthetic equivalent, replacing a margin requirement with a more expensive option spread. So there's no point to such a restriction, the broker should just make sure you understand the margin requirements and worst case loss and let you do what you want.