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Below are the five levels of option trading, defined by the types of option trades you can place if you have an Option Agreement approved and on file with Fidelity.
The option trades allowed for each of the five option trading levels:
* Retirement accounts can be approved to trade spreads. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.
You might buy an option instead of the underlying security in order to obtain leverage, since you can control a larger amount of shares of the underlying security with a smaller investment. This gives you the potential for a higher-percentage return than if you were to buy the stock outright. However, with possibility also comes higher risk. If you buy options instead of the underlying security, your options can expire worthless - but if you buy the stock, you still own the shares.
The owner of an option contract is not obligated to buy or sell the underlying security. However, the seller of an option, if assigned, is obligated to buy or sell the security at the strike price.
You must meet the following requirements to trade options at Fidelity:
Select Update Accounts/Features under the Accounts & Trade tab, and click Margin and Options under Account Features.
To trade on margin, you must have a Margin Agreement on file with Fidelity. If you do not have a Margin Agreement, you must use cash. To establish a Margin Agreement on an account, select Update Accounts/Features under the Accounts & Trade tab, and click Margin and Options under Account Features.
An option chain is the list of all the options available for an underlying security.
Multi-leg options are two or more option transactions, or "legs," bought and/or sold simultaneously in order to achieve a certain investment goal. Typically, multi-leg options are traded according to a particular multi-leg option trading strategy.
When placing a multi-leg option trade, use the multi-leg option trading ticket because:
You can enter and execute all of the legs of your trade at the same time, based on the pricing you requested. Though you could enter each individual leg on a separate ticket, you risk having one of your legs execute while another one doesn't, or having both execute but at prices you didn't expect.
With a call option, the buyer has the right to buy shares of the underlying security at a specific price for a specified time period. With a put option, the buyer has the right to sell shares of the underlying security at a specified price for a specified period of time.
You can learn more about trading options through Fidelity's Learning Center at Research > Learning Center.
To see your positions from the Trade Options page, select the Positions tab in the top right corner of the Trade Options page. This tab displays each position's Symbol, Quantity (QTY), Price, Value, and Type. There are also tabs to view Orders and Balances.
During market hours, the figures displayed are displayed in real-time. The date-time stamp displays the date and time on which these figures were last updated. To refresh these figures, click Refresh.
To see your balances from the Trade Options page, select the Balances tab in the top right corner of the Trade Options page. This tab displays the same fields displayed on the Balances page. To see more balances, click "Show All" During market hours, balances are displayed in real-time. To refresh the balances, click "Refresh".
A list of commonly-viewed Balance fields also appears at the top of the page under the account drop down box. The Balance fields displayed (when applicable) are Total Account Value, Cash Avail to Trade, Committed to Open Orders, Settled Cash, Margin Buying Power (if you have a margin account), Non-Margin Buying Power and Day Trade Buying Power (if you have a Day Trade Account).
To see your orders from the Trade Options pages, select the Orders tab in the top right corner of the Trade Options page. The tab displays information for open, pending, filled, partial, and canceled orders. You may attempt to cancel or attempt to cancel and replace an order from the Orders tab on the Trade Options page.
The date-time stamp displays the date and time on which this information was last updated. To refresh order information, click Refresh.
Margin orders require a margin agreement.
To direct an options order to a particular exchange, on the Options trade ticket, in the Route drop-down, select Directed. Then select one of the following exchanges:
Specific share trading is not available when placing a directed options order. Also, The Boston Options Exchange (BOX) will not accept day Stop or Stop Limit orders, or Good 'til Canceled orders.
You place a price restriction on an option trade order by selecting one of the following order types:
You place a time limitation on an option trade order by selecting one of the following time-in-force types:
You can't place an on-the-close option order through Fidelity.com. You must call a Fidelity representative at 800-544-6666 to obtain approval and to place the order.
You place restrictions on an option trade order by selecting one of the following conditions.
To enter an option symbol on the trade options page, you must first enter an underlying symbol in the Symbol box. Once the underlying symbol is entered, you are able to choose the expiration, strike and call/put from the dropdowns on the trade ticket.
After you make an options trade, it (and its status) will appear immediately on your Order Status screen. The status is updated intraday on your Order Status screen.
You can attempt to cancel an option order from the Order Status screen by selecting the order you wish to cancel and clicking "Attempt to Cancel." Similarly, you can attempt to cancel and replace an order by clicking the order you wish to cancel and replace and clicking "Attempt to Cancel and Replace." You can attempt to replace the leg quantities, limit price, or trade conditions on the trade.
How fees and commissions are assessed depends upon a variety of factors. Visit Investment Products > Trading on Fidelity.com for a complete commission schedule.
The third Friday of each month is expiration Friday. Options with the same month and year as the expiration Friday date stop trading after the market closes. You should exercise caution with regard to options on expiration Friday. In general, if a long option you purchased has value, you should exercise or sell it before the market closes on expiration Friday, or you'll lose your profits. Similarly, if a short position option you sold has value, you should buy it back before the market closes on expiration Friday.
Your positions, whenever possible, will be paired or grouped as strategies, which can reduce margin requirements and provide you a much easier view of your positions, risk, and performance. Strategies displayed will include those entered into as multi-leg trade orders as well as those paired from positions entered into in separate transactions. Pairings may be different than your originally executed order and may not reflect your actual investment strategy.
Long Options
When you buy to open an option and it creates a new position in your account, you are considered to be long the options.Requirement: 100% cash upfront
Example:
Buy 10 XYZ Jan 20 Calls at $1; Cost = 10 (number of contracts) x 1 (option price) x 100 (option multiplier) = $1,000
The account consists of: Long 10 XYZ Jan 20 Calls
Spread Requirements*
There are two types of spreads: debit and credit. If you are attempting to open spread positions you must maintain a minimum net worth of $10,000 for 10,000 for equity and indexes equity and indexes in your account. This requirement applies to all eligible account types for spread trading.*Retirement accounts can be approved to trade spreads. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.
Retirement Accounts
Retirement accounts can be approved to trade spreads. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction. If you are approved for spreads trading in your retirement account you must maintain a minimum Cash Spreads Reserve Requirement of $2,000. This is in addition to any requirement, if applicable, for the spread.
Debit Spread Requirements
- Full payment of the debit is required.
- Initial spread transactions require an additional cash amount of the minimum cash requirement (also called the cash spread reserve) of $2,000.
- The minimum cash requirement is a one-time assessment and must be maintained while you hold spreads in your retirement account.
Example:
In this example, the first spread order placed is:
Buy 10 ABC Jan 50 Calls at $3
Sell 10 ABC Jan 55 Calls at $1
Net debit = $2.00To calculate the debit spread requirement:
Net debit (2.00) x number of contracts (10) x multiplier (100) = Debit ($2,000)To calculate the cash reserve debit:
$2,000 (debit) + $2,000 (minimum cash requirement) = $4,000 (total cash reserve debit)The account consists of:
Cash spread reserve (requirement) = $2,000.
Spread:
Long 10 ABC Jan 50 Calls
Short 10 ABC Jan 55 CallsCredit Spreads Requirements
You must make full payment of the credit spread requirement.Initial spread transactions require you to meet the minimum cash requirement, also called the cash spread reserve, of $2,000.
The minimum equity requirement is a one-time assessment and must be maintained while you hold spreads in your retirement account.
Important: Credit spread requirements can be met by the minimum cash reserve up to $2,000. If the spread requirements are greater than $2,000 you must have the available cash to meet the debit or credit spread requirement.
Example 1:
In this example, the customer is placing his or her first credit spread order.Sell 15 XYZ Mar 65 Puts at $2.00
Buy 15 XYZ Mar 60 Puts at $1.00
Net Credit $1.00To calculate the spread requirement:
Total spread requirement ($6,000) = $7,500 (Difference between the strike prices x number of contracts x multiplier) - $1,500 (cash received)To calculate the cash reserve debit:
Details:
- Difference between the strike prices ($5) x number of contracts (15) x multiplier (100) = $7,500
- Net credit ($1) x number of contracts (15) x multiplier (100) = $1,500
- The total spread requirement of $6,000 is greater than the $2,000 minimum cash requirement.
- Therefore, the cash reserve debit is $6,000.
The account consists of:
Cash spread reserve (requirement) = $7,500 ($6,000 cash reserve debit plus $1,500 credit received)
Spread:
- Short 10 XYZ Mar 65 Puts
- Long 10 XYZ Mar 60 Puts
Example 2:
In this example, this is the first credit spread order placed.Sell 5 XYZ Mar 65 Calls at $2.50
Buy 5 XYZ Mar 60 Calls at $1.50
Net Credit $1.00To calculate the spread requirement:
Total spread requirement ($2,000) = $2,500 (Difference between the strike prices x number of contracts x multiplier) - $500 (credit received)To calculate the cash reserve debit:
Details:
- Total spread requirement ($2,500) = Difference between the strike prices ($5) x number of contracts (5) x multiplier (100)
- Credit received ($500) = Net credit ($1) x number of contracts (5) x multiplier (100)
- The net spread requirement of $2,000 is equal to the $2,000 minimum cash requirement.
- Therefore, the cash reserve debit is $2,500 ($2,500 spread requirement - $500 credit received).
The account consists of:
Cash spread reserve (requirement) = $2,500 ($2,000 cash reserve debit plus $500 credit received)
Spread:
- Sell 5 XYZ Mar 50 Calls
- Buy 5 XYZ Mar 55 Calls
Non-Retirement Accounts
Debit Spreads Requirement
Full payment of the debit is required.Example:
Buy 10 XYZ 20 Calls at $2
Sell 10 XYZ 25 Calls at $.50
Net Debit = $1.50 or (Long Premium $2 - Short Premium $.50) x 10 (contracts) x 100 (multiplier) = $1,500The account consists of:
Long 10 XYZ Jan 20 Calls
Short 10 XYZ Jan 25 CallsCredit Spreads Requirements
Whichever is lower:
- The greater of the two naked requirements on the short call, as calculated for naked equity calls
- The greater of the difference in the strike prices or the difference in the premiums
Example:
Underlying price $55
Sell 10 XYZ Feb 50 Put at $1.50
Buy 10 XYZ Feb 45 at $.50 Put
Net Credit = ($1.50 (short premium) - $.50 (long premium)) x 10 (contracts) x 100 (multiplier) = $1,000Requirement = $5, 000
Which is the lower of:
Difference between Strike prices:
50 (strike price) - 45 (strike price) x 10 (contracts) x 100 (multiplier) = $5,000
or
The higher of the Naked Requirement:
- (($55 (underlying stock) x .25) - 5 (out of the money) + 1.50 (premium)) x 100 (multiplier) x 10 (contracts) = $10,250
- (50 (strike price) x .15 + $1.50 (premium)) x 100 (multiplier) x 10 (contracts) = $9,000
Naked Requirements
An option is considered naked when you sell an option without owning the underlying asset or having the cash to cover the exercisable value.
If you are attempting to short naked options you must have a margin account and must maintain a minimum balance of $20,000 for equity and $50,000 for indexes in your account.
Equity calls: The higher of the following requirements:
- 25% of the underlying stock value, minus the out-of-the-money amount, plus the premium
- 15% of the underlying stock value, plus the premium
Equity puts: The higher of the following requirements:
- 25% of the underlying stock value, minus the out-of-the-money amount, plus the premium
- Premium plus 15% of the strike price (for both in-the-money and out-of-the-money options)
Index calls: The higher of the following requirements:
Broad-based:
Narrow-based:
- 20% of the underlying value, minus the out-of-the-money amount, plus the premium
- 15% of the underlying value, plus the premium
- 25% of the underlying value, minus the out-of-the-money amount, plus the premium
- 15% of the strike price, plus the premium
For short straddles or strangles, the requirement is the greater of the two naked option requirements, plus the premium of the other option, in cash or available to borrow.
Requirements are subject to change.
You must have written (be short) the number of contracts you want to close in cash or margin. The number of contracts you want to buy at the market close cannot exceed the quantity of contracts held short in the account.
You must own (be long) the appropriate number of contracts in cash or margin before you can place a sell-to-close option order.
You can sell covered calls online in the same cash or margin accounts which include the underlying security.
You must own (be long) the appropriate number of shares of the underlying security in the same account type (cash or margin) as the one from which you are selling the option You cannot have orders open against the shares of the underlying security. You cannot sell puts to open or uncovered (naked) calls.
All-or-none good-'til-canceled options orders are not allowed on the Chicago Board of Options Exchange (CBOE).
You may place limit orders for the day only for options spreads and straddles. If the option price is equal to or greater than $10, the limit price should be within 30% of the market price. If the option price is less than $10, the limit price should be within a reasonable amount of the order.